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Sept. 28, 2020, 9:15 a.m. EDT

What stock-market investors will be watching for in first Trump-Biden debate

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By William Watts

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Activity in the options market, as reflected by Cboe Volatility Index futures, shows that traders see the potential for elevated volatility in November, December and January .

Related: Contrarian investors are betting against increased volatility around the election

“Political discord and uncertainty have been one of the many things that have defined 2020, and this trading variable will only grow more relevant as the first presidential debate looms and the election approaches.,” wrote rates analysts Ian Lyngen and Jon Hill of BMO Capital Markets, in a Friday note.

Some market watchers do expect traders to deliver something of an early judgment on the debate.

“FX markets in Asia Wednesday morning may be the first litmus test of how the dollar will fare in the run-up to the election,” wrote analysts at ING, in a Friday note.

“One school of thought is that a strong Trump performance is equity positive/dollar negative. We have the view, were Biden to win, the dollar could decline in 2021 on a benign world view — but let’s look out for the price action on Wednesday,” they said.

While the polls may drive the immediate market reaction, analysts said there was plenty in the way of details to listen for in the debate. Investors will want to hear how Trump would plan to deal with China in a second term and will be eager for Biden to put more light on his approach to relations with Beijing, wrote Kristin Hooper and Andy Blocker of Invesco, in a note.

And since tax policy may be the biggest source of concern among investors when it comes to a Biden presidency, investors will “want to hear which taxes in the Biden tax plan he is committed to implementing, and whether or not the state of the economy will impact his timing,” they wrote.

So what should investors do? Crossmark’s Fernandez said investors should resist making knee-jerk reactions to headlines and changes in the polls. With the economic path dependent on how the pandemic plays out, even the election outcome itself might not be that much of a mover for the market, she said.

Crossmark has advised clients to adopt a “barbell” strategy, moving about a month ago to maintain exposure to large-cap growth stocks but trimming positions that had become excessively overweight before the September pullback, while building positions in more staple-type stocks that have lagged behind in the 2020 rally.

Following the debate, attention next week will be locked on the labor market as investors look to assess whether the economic rebound is losing steam amid the lack of another round of rescue spending from Washington.

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