The stock market has been anything but predictable this year, with volatility increasing and returns on the S & P 500 far surpassing expectations. While presidential elections usually lead to market uncertainty and lower returns, 2020 has been an exception. Tech earnings have remained strong, driving the S & P 500 to near historic highs.
As we head into the final months of the year, the market is bracing for election-related volatility. The Cboe Volatility Index (VIX) remains elevated, signaling uncertainty around the timing of the election results. Historically, the market tends to rally post-election, regardless of the outcome. However, this year’s unusual market performance proves that macroeconomics play a significant role in market returns.
Earnings season has been impressive, with third-quarter earnings beating estimates and companies showing resilience in the face of economic challenges. Technology sector earnings, in particular, have been driving market growth, with double-digit gains expected to continue into next year.
Despite the positive earnings reports, rising bond yields and high market valuations present challenges for continued market growth. With the market trading at historically high levels, investors should exercise caution and be prepared for potential market corrections.
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