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Goldman expects S&P 500 volatility to rise before U.S. midterms
Goldman says the S&P 500 has posted a 0.0% median return from early August to Election Day across 13 midterm cycles since 1974.
Goldman Sachs expects S&P 500 volatility to increase over the months ahead of the U.S. midterm elections, citing a historical pattern in which uncertainty around economic policy grows as election season approaches.
In a note, strategists led by Ben Snider said economic policy uncertainty typically rises during August ahead of midterms and stays elevated in the subsequent months. The firm pointed to unusually low correlations between individual stocks that have helped keep index volatility subdued, even as stock and factor-level volatility run higher.
Goldman expects that correlation dynamic to change as the corporate earnings season winds down. It said artificial intelligence-related trading and option overwriting have continued to suppress stock correlations, but it expects higher index volatility as investors focus more on macro issues including elections, geopolitics, and interest rate volatility.
The bank also highlighted historical index performance, saying the S&P 500 delivered limited gains in the months leading up to midterms, with a median return of 0.0% from the beginning of August to Election Day across 13 election years since 1974. Goldman added that returns typically improved after the elections, with a median gain of 6.0% during the following three months, and that investment flows have historically turned cautious ahead of Election Day as mutual funds and foreign investors reduce exposure before rebuilding after the vote, according to Yahoo Finance.
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