Download the Schwab app from iTunes®Close

Election Watch: What Should Investors Expect?

In a year full of what already feels like more than a fair share of volatility, investors may be wondering if we could be headed for another rough ride around Election Day.

“The market hates surprises,” says Randy Frederick, Schwab’s vice president of trading and derivatives. “And when it gets surprised, the first reaction of traders is usually to hit the sell button.” Election night 2016 is a case in point: When voter returns in key states started to indicate a surprise Donald Trump victory, S&P 500® Index futures dropped 5% in 20 minutes. “It was probably the steepest and sharpest selloff I have ever witnessed,” he says.

Investors saw a similar market drop this year on news that the President had contracted COVID-19 and then again when he announced via Twitter that all negotiations on a new coronavirus stimulus package should stop until after the election. Despite initial drops like these, the market often recovers fairly quickly, Randy says. “After everyone has a moment to digest the news, often times it will reverse and move higher.”

With most polls currently favoring former Vice President Joe Biden by a larger amount than they had incorrectly favored Hillary Clinton in 2016, investors may see a decline if Trump prevails “simply because it would be a surprise. And I would urge investors not to react to the first move in the markets if that happens again,” advises Randy.

Volatility indicators

One way to judge investor expectations for what lies ahead is to look at the Cboe Volatility Index®, or the VIX®, and the derivatives that track it—though at this point the picture is mixed. The VIX has been well above normal levels for months. “I believe this is almost entirely due to the uncertainty about not just the outcome of the election, but also how long it may take before that outcome is known—and whether or not there will be a peaceful transfer of power,” says Randy.

At the moment, VIX futures reflect expectations of a spike in November. “That’s unusual because those futures contracts actually expire after the election,” says Randy, which suggests that investors don’t expect the election to put an end to market volatility. “Regardless of how the market performs, the VIX Index will likely remain elevated and possibly even increase a little until after the election, and then it may decline more slowly than some expect.”

However, other data seems to indicate that at least some contrarians are hoping to profit from a sharp decline in volatility immediately following the election. “A belief that a volatility spike related to the election is inevitable had become such a crowded trade that some traders decided to start taking the other side,” says Randy. “VIX put options had become very, very cheap relative to the price of VIX call options and that caused some speculators to buy them up, just in case the election, the vote count, and the transfer of power go quickly and smoothly.” In the past week, though, even that trade has become much more expensive.

Look beyond election day

What do these mixed signs mean for investors? While small strategic changes might make sense for some—taking a few profits this year if you think capital gains taxes might go up, for example—Randy advises against making trades in the heat of the moment. “I often remind investors that even if we could predict with a high degree of certainty which candidate was going to win the election, we wouldn’t necessarily know how the market will react.”

We do know that since 1932, the S&P 500 has gained an aggregate of 710% under Democratic presidents and 375% under Republican presidents. But staying invested the entire time would have earned 47,000%. “If that isn’t a compelling enough argument to stay invested in the market regardless of who wins, nothing is.”

What You Can Do Next

Important Disclosures

The policy analysis provided by the Charles Schwab & Co., Inc., does not constitute and should not be interpreted as an endorsement of any political party.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Past performance is no guarantee of future results and the opinions presented cannot be viewed as an indicator of future performance. 

Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly. For more information on indexes please see

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

Diversification, asset allocation, and rebalancing strategies do not ensure a profit and do not protect against losses in declining markets. Rebalancing may cause investors to incur transaction costs and, when a nonretirement account is rebalanced, taxable events may be created that may affect your tax liability.

Investing involves risk, including loss of principal.


Thumbs up / down votes are submitted voluntarily by readers and are not meant to suggest the future performance or suitability of any account type, product or service for any particular reader and may not be representative of the experience of other readers. When displayed, thumbs up / down vote counts represent whether people found the content helpful or not helpful and are not intended as a testimonial. Any written feedback or comments collected on this page will not be published. Charles Schwab & Co., Inc. may in its sole discretion re-set the vote count to zero, remove votes appearing to be generated by robots or scripts, or remove the modules used to collect feedback and votes.