EDITOR NOTE: If you’ve been following the VIX (Fear Index) futures, then you might have noticed that the near term contracts are more expensive than the far end contracts. This means that more volatility is expected now--in the days before and weeks following the 2020 election--than later. In the article below, Wells Fargo (though not mentioning the VIX) confirms this forecast. Their message: brace for a frightening ride in the market. With a vitriolic election just days ahead, pandemic cases on the rise, and the economy's state highly uncertain, volatility will prevail. And if you have a large stake in the stock market, your portfolio may end up getting hammered. The Texas Ratio for Wells Fargo Bank reveals that between June 30, 2019, - June 30, 2020, the bank experienced a negative change of 22.38%, resulting in a grade of "C+." Click here for more data, balance sheet and financial strength at Wells Fargo.
Wells Fargo Securities’ Michael Schumacher has a message for investors: Buckle up.
The firm’s head of macro strategy warns Wednesday’s market turbulence may just be a preview of what’s ahead.
“When you think about the U.S. elections, Covid worsening [and] all sorts of other news items coming out in the next couple of weeks, it could be a fairly scary time,” Schumacher told CNBC’s “Trading Nation.”
On Wednesday, the S&P 500 and Dow had their worst days since June 11 due to growing fears over rising coronavirus cases across the nation. There’s speculation they could spark new containment measures and closures.
While jitters over rising virus cases drove the latest sell-off, Schumacher warns election uncertainty has the potential to pummel stocks even more.
“One thing we pointed to for a while at Wells Fargo is the chance the election results are delayed. In that case, it’s almost certainly risk-off. So, a lot of reasons to be concerned over the next week to ten days,” he said. “Right now, it seems the virus has the upper hand, but it’s a very close call. And, frankly, these things are intertwined.”
Besides the impact on stocks, the worsening pandemic and election uncertainty have also been putting pressure on U.S. Treasury yields. Over the past five trading sessions, the benchmark 10-year Treasury Note yield is down more than 5% and closed Wednesday at 0.774%. But according to Schumacher, the softness in yields is temporary.
He predicts lawmakers will ultimately pass a virus aid package. Even if it comes as late as February, Schumacher believes it’ll drive yields higher.
“In that case, what does it mean? More deficit spending, more Treasury supply – probably more importantly risk on,” Schumacher said. “All these things point to higher yields.”
Schumacher’s year-end target for the 10-year yield is 0.90% to 1%. Next year, he sees it between 1.25% to 1.50%.
Originally posted on CNBC