Increased market volatility seen heading into midterms
SPY•Stocks often trade sideways before Election Day
Goldman strategists note that equities typically trade sideways in the months ahead of U.S. midterms:
"During 13 midterm election years since 1974, the S&P 500 has generated a median return of 0% from the start of August through Election Day," they write.
Returns often change or improve after the election, they note.
Adding to recent volatility is the second-quarter earnings reporting period for S&P 500 .SPX companies.
Meanwhile, after ending at 14.96 on July 10, or its lowest level since January, the Cboe Volatility Index .VIX nearly touched 20.00 earlier on Monday.
Goldman sees volatility rising into the U.S. midterms
Market volatility is likely to increase in the months leading up to the U.S. midterm elections, according to Goldman Sachs (GS) strategists.
GS noted that in past cycles, economic policy uncertainty has usually risen ahead of midterm elections and remained elevated in the subsequent few months, the strategists wrote in a recent note. "Alongside elevated policy uncertainty, equity volatility has usually risen in the lead-up to Election Day."
U.S. midterm elections take place in early November and include federal, state and local contests. But investors will be especially keen to see how they affect which party controls Congress. Right now, U.S. President Donald Trump's Republican party controls both chambers of the U.S. Congress.
"Prediction markets indicate a roughly 85% likelihood that Democrats win control of the House, implying a limited likelihood of a major signal from the election outcome regarding future legislation," they note, but add that "investors are watching the midterms for signals relating to the 2028 election cycle."
