The Stock Market May Love the Election Results No Matter Who Wins

I’m keeping this short tonight because it feels like 1 AM, even though it’s only 6:30 PM. It’s been dark in New York since before 5, and I’m already ready for bed. I really don’t like the switch from daylight saving time back to standard time.

Anyway, the VIX 1-Day finished near 23, suggesting the market is pricing in significant volatility around tonight’s election. That means there’s a good chance the S&P 500 rallies today, perhaps by 1% or so, regardless of which side wins, as that event-related uncertainty disappears.

TV will spend all day explaining that the Democrats swept and the market loves it, or that the Republicans swept and the market loves it. Or my personal favorite, that the market loves gridlock.

In all likelihood, once the results are clear, the implied volatility premium built into short-dated options will collapse. As those options lose value and their deltas change, dealers may need to unwind the stock and futures hedges they put on ahead of the election. If that leaves dealers buying back short hedges, those flows could help push the S&P 500 higher, regardless of the political outcome.

That’s all I have tonight. Goodnight.

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