Market Events
Monday, October 28th 2024
Implied Moves Ahead of the 2024 Election: What Markets Are Telling Us
As the Election Approaches, Markets Are Sending Signals—Are You Paying Attention?
Summary
As the 2024 election approaches, financial markets indicate reduced volatility expectations across major segments like gold, energy, and the S&P 500, with implied moves dropping significantly since August. Gold has seen a 42.3% decrease, while energy and the S&P 500 have dropped by 38.9% and 40%, respectively. However, sectors like defense and technology exhibit mixed trends, with defense showing the least decline at 15.4%, reflecting ongoing uncertainty. Overall, the data suggests that the market is not overly concerned about dramatic election-related shifts, although certain sectors remain vulnerable to government policy impacts.
By Matt Amberson, Founder & Principal at ORATS
As we near the 2024 election, financial markets are giving us important signals about how traders and investors are preparing for potential volatility. While ORATS specializes in analyzing implied moves for corporate events like earnings announcements, the same principles can help us observe changes in implied volatility across different sectors as we approach the election.
At ORATS, we calculate implied moves by analyzing the term structure of implied volatility and the value of the at-the-money straddles, around the event, in this case the US election on November 5th. We can show what the implied move that options investors were expecting, and we can show a trend historically.
Let's examine the latest data on implied moves across key market segments and sectors and see what the numbers tell us about market expectations as the election draws closer.
Economic Segments: The Market's Broader Outlook
The chart for economic segments—including the S&P 500 (SPX), Energy (XLE), Gold (GLD), and the 10-Year Bond Fund (TLT)—shows consistent declines in implied moves since August. This indicates that market participants expect less volatility in these areas as we approach the election.
Key Insights:
- Gold (GLD): Implied moves have dropped 42.3% since August, the most of any segment. This suggests that investors feel less concerned about large-scale economic disruptions and have a stable outlook for gold.
- Energy (XLE): Implied moves in energy have decreased by 38.9% in the last 90 days, signaling that traders expect relative stability in energy markets.
- S&P 500 (SPX): The S&P 500's implied move has fallen by 40% since August first, reflecting broader market expectations of less overall volatility in the short term.
- 10-Year Bond Fund (TLT): Bond market volatility has dropped by 23.1% in the past three months, showing relative consistency in the face of interest rate adjustments.
Sector-Specific Trends: Election-Driven Uncertainty in Key Areas
Turning to specific sectors, we see mixed trends in Technology (XLK), Defense (ITA), and Healthcare (XLV). These sectors show different levels of volatility heading into the election.
Key Insights:
- Defense (ITA): Implied moves have dropped the least of any sector or segment by only 15.4%, indicating ongoing uncertainty in defense spending based on potential election outcomes.
- Technology (XLK): Implied moves have declined by 35.9% since August but recently ticked up.
- Healthcare (XLV): Implied moves have dropped by 38.5% over the past three months.
What the Data Tells Us So Far
When comparing now versus August 1st:
- Gold (GLD) and Energy (XLE) have seen significant the largest decreases in implied moves, indicating less uncertainty that existed three months ago.
- Technology (XLK) shows some uncertainty tied to regulation, while defense stocks (ITA) remain more volatile, reflecting the unknowns around future government effects on these sectors.
Conclusion: What the Implied Moves Say About the Election
Implied moves across sectors suggest that the market isn't overly concerned about dramatic shifts related to the election—at least for now. Key economic segments like gold, energy, and the broader stock market are showing less uncertainty, with defense and technology being the exceptions. These sectors remain uncertain, as their futures are closely tied to government policy decisions.
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