3 top investing executives lay out the biggest risks to markets heading into a volatile election season — and share their best recommendations for navigating what happens next

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Depending on who you ask, the stock market is either drifting higher or heading towards a precipitous freefall over the next few months. 

While markets are hard to predict, investors are almost certainly facing elevated volatility between now and the November US presidential elections, according to three top investing executives.

“If you remember a year ago, the VIX was below 10,” said Kirk Hartman, global chief investment officer for Wells Fargo Asset Management, which manages $578 billion in assets. “So, I would argue that it’s actually a little bit of rough waters here with the VIX being at 25 and having spikes.”

Hartman was referring to the CBOE SPX Volatility Index (VIX), the so-called Wall Street fear gauge which measures the expected future volatility within the US equity market. 

And the biggest source of the heightened volatility? US presidential elections. 

“We think the two biggest impacts we can have for US equities from the election come from potential policy around tax,” said Greg Boutle, head of US equity and derivative strategy at BNP Paribas in a Wednesday media call.

A Biden administration could look to enact a partial rollback of the Tax Cuts and Jobs Act of 2017 and potentially hike the capital gains tax, according to Boutle. 

“I think both of those things could have a disproportionately negative impact on US equities relative to the economy,” he said, adding they “could have a disproportionately negative impact on some of those growth stocks that have so far done the bulk of the heavy lifting in the rally.”

In addition to the uncertainty surrounding the US election outcomes, Esty Dwek, head of global market strategy at  $1 trillion Natixis Investment Managers, is factoring in risks including simmering US-China trade tensions, Congress’ failure to pass additional stimulus packages, and a second wave of COVID-19 cases that shut down the economy again. 

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Navigating choppy waters 

Faced with such market risks, the three investing executives have each offered their own recommendations for investors to navigate through choppy waters.

Wells Fargo’s Hartman is watching the industrials sector to gauge if the economic recovery is taking place. The iShares US Industrials exchange-traded fund tracks an index of companies in the sector.

“Everybody thinks growth is only mega tech, but there are actually a lot of good, solid industrial companies in the area of robotics and others,” he said. “I think the tech stocks have had a heck of a run, so I would be looking more at the industrials and the value sectors.”

He is also positive on the energy and materials sectors making a comeback. Investors can execute on his view via the iShares US Energy ETF and Materials Select Sector SPDR Fund.

“Oil is under pressure right now, but if you look at the last decade, we had oil prices as high as $100 a barrel, and then earlier this year we had oil futures below zero,” he said. “If you do get a recovery, you’re going to get energy and materials coming back.”

Another place to find value is outside of …read more

Source:: Business Insider

      

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