It’s been a wait-and-see kind of month: The blue-chip DAX index in Germany has briefly climbed above the psychologically-important 10,800 point mark several times since September, only to hit a ceiling and trade sideways.
All around the world, investors are waiting for November 8. In Germany, the U.S. presidential election could be the spark that triggers either a sustained breakout above 10,800 points or a major sell-off, depending on who wins and under what conditions.
Investors naturally hope for the former. Last week, the DAX reached a new high for the year of 10,827 points, defying predictions of an October crash and raising expectations for a year-end rally. Yet the markets remain cautious despite the recent upturn, according to a Handelsblatt survey of 2,300 investors.
Only 30 percent of those polled expect markets to rise over the next three months, while 24 percent anticipate a downturn and 32 percent are neutral. Just 23 percent of investors plan to buy, while 12 percent plan to sell. Two-thirds of all investors are waiting to see how the situation will develop.
The tumultuous U.S. presidential election has added to the uncertainty. Investors are concerned that a Donald Trump victory would create volatility, but they also worry that a sweep by Hillary Clinton and the Democrats of the presidency and both houses of Congress would bring disruptive change.
That uncertainty is only likely to increase, as the remergence of a scandal over Ms. Clinton’s use of a private email server during her time as secretary of state has once again narrowed the polls.
A clear outcome that doesn't overturn the apple cart could serve as the spark that triggers an upswing in the markets.
In the United States, broadcaster CNN’s Fear and Greed Index has fallen to 30 percent, which signals a moderate amount of anxiety in the markets in the run-up to the election. About 24 percent of private investors in the United States are bullish.
Stephan Heibel, director of the market research firm Animusx, doesn’t believe a victory by Mr. Trump or a Democratic sweep would trigger a sustained sell-off.
“All of that has already been taken to heart by most investors, so the corresponding danger of a sell-off is very small from the perspective of the sentiment analysis,” Mr. Heibel told Hanelsblatt.
If Hillary Clinton wins the election and Mr. Trump makes good on his threat to challenge the result, markets will likely reflect the political uncertainty. But a less disruptive outcome is also in the cards: “What would happen, for example, if Hillary Clinton wins by a narrow margin that’s sufficient to keep Trump from challenging it?” Mr. Heibel asked.
A clear outcome that doesn’t overturn the apple cart could serve as the spark that triggers an upswing in the markets, he said. Bank, biotech and pharmaceutical stocks have been under pressure in the run-up to the vote. They will have room to bounce back once the election has passed, he said.
Investors were overly optimistic and careless during September and much of October, Mr. Heibel said, which prevented a sustained breakout. They are now taking precautions against potential losses, which could set the stage for sustained growth.
“That’s a good condition for a breakout,” Mr. Heibel said.
Jürgen Röder is a finance correspondent for Handelsblatt based in Frankfurt. To contact the author: röder@handelsblatt.com