As the US gears up for one of its most highly anticipated elections, investors across stocks, cryptocurrency, and bonds are positioning themselves for potential market upheaval. Historically, major political events such as this election can trigger short-term volatility, with far-reaching effects across different asset classes. This time, the race between Kamala Harris and Donald Trump, along with recent Federal Reserve actions, has already set the stage for amplified swings in equity options, bond yields, and crypto valuations.
Why This Election Matters More Than Ever
Political analysts and market strategists agree: the stakes are high. Both candidates represent distinct economic approaches, and their victory could sway financial policy, regulatory environments, and even international trade. For traders and investors, that translates into heightened market sensitivity. With options trading reflecting significant hedging activity, markets are showing clear signs of investors positioning themselves for post-election movements.
| Asset Class | Election-Specific Volatility Indicator | Market Reaction |
|---|---|---|
| Stocks | Implied Volatility Surges | Short-term hedging with S&P 500 put options, sector-specific trades |
| Crypto | High Volatility in Bitcoin Options | Increased interest in crypto as a hedge against traditional markets |
| Bonds | Rising Bond Yields | Tail-risk hedges and long-end rate selloffs |
| Currencies | Euro and Peso Volatility Peaks | Bearish euro positions against USD, heightened USD/MXN hedging |
Stocks: Election Hedging and Sector-Specific Trades
The lead-up to the election has seen significant hedging activity in the US stock market, with implied volatility on the S&P 500 rising substantially. Investors are seeking last-minute protection through options, particularly for the S&P 500 and tech-focused ETFs like the QQQ. Shorter-term options trading has allowed investors to position close to the election, aiming to hedge potential downside risks.
In particular, sectors like financials, crypto stocks, and clean energy companies are experiencing surges in volatility. According to Daniel Kirsch of Piper Sandler & Co., investors expecting a Trump victory have shown increased exposure to financials and crypto stocks. In contrast, those anticipating a Harris win have leaned towards renewable-energy stocks. This sector-based hedging reflects a belief that each candidate’s policies will favor different industries.
Rising Demand for S&P 500 Puts and QQQ ETF Options
With volatility elevated across the board, hedging has been a priority for investors as they await the election outcome. The Cboe VVIX Index, which measures the volatility of the VIX, is also heightened, signaling significant market hedging. Despite the uptick in implied volatility, experts predict a 1.7% movement in the S&P 500 post-election — well below historical highs.
Beyond Stocks: Why Crypto Volatility is Surging
The cryptocurrency market, particularly Bitcoin, is experiencing similar volatility increases. Recent data from Deribit shows Bitcoin’s implied volatility reaching annualized highs of 63.24%, its peak since July. As Bitcoin and other crypto assets move in response to perceived economic risks, a potential Trump win is associated with crypto-friendly policies, creating further swings.
Options traders have turned cautious, and the market is seeing a shift towards short-term puts. Yet, the bullish outlook remains, as longer-tenor calls reflect optimism in the event of post-election rate cuts or regulatory easing in 2025. Crypto positions remain less directional as traders opt for a hedge-focused approach, awaiting clarity on regulatory shifts.
Bond Yields: De-risking Amid Rising Rates
Bond yields have been on the rise since the Fed’s September rate cut, with investors increasingly offloading long positions in futures. Many traders are hedging against the potential of higher fiscal risks following the election, especially in the event of a “sweep outcome.”
The most actively traded options in the bond market have been tail-risk hedges for higher yields. Analysts at Bloomberg suggest that long-end rate selloff positioning is a sign of concerns over increased fiscal spending. JP Morgan’s recent survey confirms that traders are reducing both long and short positions, aiming for neutrality as election volatility unfolds.
Currency Volatility Driven by US Dollar Bets
The FX market is also bracing for election-driven volatility. Currency pairs like the dollar-yuan and dollar-peso have seen record-high swings as traders prepare for potential policy changes. According to Bloomberg, one-week dollar-yuan volatility hit new highs as markets anticipate either continued or even heightened tariffs if Trump retains his position.
| Currency Pair | One-Week Volatility Increase | Key Concerns |
|---|---|---|
| USD/CNY | Record High | Tariff policy, trade wars |
| EUR/USD | Highest Since 2023 | Potential tariff impact |
| USD/MXN | Four-Year High | Trade and immigration policies |
Analysts point to continued bearishness on the euro relative to the dollar, with a Trump win likely signaling higher trade tensions between the US and EU. The peso, often sensitive to US election outcomes due to trade relations, is also seeing an unusual premium for short-term hedging against possible swings.
The Bigger Picture: What Happens Post-Election?
With so much hedging ahead of the election, what might happen once the dust settles? Many experts, including Citigroup’s Stuart Kaiser, predict that a stable post-election environment could see some of this hedging unwind, potentially pushing the market higher. Mutual fund buying in November, combined with share repurchasing, could stabilize equity markets while systemic buying and re-hedging by option dealers lead to lower volatility.
If the election outcome is widely accepted and market conditions remain calm, the VIX could drop sharply, enticing new buyers. According to Ren from Penn Mutual, such an environment might provide a strong foundation for year-end rallies across equity markets.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investing in stocks, cryptocurrencies, and other financial instruments involves risks, and past performance does not guarantee future results. Always consult with a financial advisor before making investment decisions.
