Morning Notes — Near-Term Narrative

Near-term narrative: The contested election scenario has reemerged as the primary risk, given we’re one week out with no fiscal stimulus and rising US case counts.  The VIX Index remains elevated and lifting to levels consistent with those from September 3-8. The S&P 500 declined ~7% during those three sessions before building a small base just above our pre-determined technical support level of ~3220.  In the absence of vaccine data, we should expect volatility into the election. 

Realist: Equity markets may be pricing the probability of a contested election outcome, but any real systemic risk should also be apparent in FX markets.  Credit default swaps have become more expensive and credit spreads have widen a bit, but FX markets have remained stable as the Fed is likely to backstop credit markets ahead of any adverse post-election outcome.  As such, the associated downside from increased equity market volatility should be viewed as a buying opportunity.