According to BCA Research analysts, the stock market is expected to remain volatile until the uncertainties surrounding the upcoming U.S. elections are resolved.
With election odds currently even, BCA Research says the political landscape is poised to influence market trends significantly over the next few months.
Analysts note that Democrats have rallied around Vice President Kamala Harris, positioning her as a younger and more photogenic candidate compared to President Biden.
Despite this support, the race remains highly competitive. "Our quantitative election models still favor Democrats for the White House and Republicans for the Senate," BCA Research notes, indicating a tightly contested election.
The potential outcomes present different risks for the stock market. "Uncertainty and volatility will rise beforehand," BCA Research predicts. They add that the market could react benignly to a gridlock scenario where neither party gains full control, which would maintain the status quo.
However, BCA Research says a single-party sweep, particularly by Republicans, could introduce greater market risks due to potential major structural changes.
BCA Research's analysis suggests that Republicans have a slight edge in winning a sweep, although the election remains competitive.
"Subjectively, Republicans are favored to win a sweep," analysts state, noting that Harris faces significant challenges, including inflation concerns, a weakening job market, and rising global instability, especially in the Middle East.
The current political climate is unfavorable for the ruling party, as indicated by BCA Research's political capital index. Consequently, equities, corporate credit, and cyclical sectors are expected to decline until the election reduces policy uncertainty.
"Bottom Line: Republicans are favored but the election is still competitive. Equities, corporate credit, and cyclical sectors will fall until policy uncertainty is reduced," BCA Research concludes.