×
Pro Analysis

Analyst says one sure Trump bet: Volatility

Donald Trump
Jonathan Ernst | Reuters
Donald Trump

With the first presidential debate on tap for Monday and poll numbers tightening, Wall Street is looking at the investment ramifications of a Donald Trump victory. There's one thing everyone on Wall Street seems to agree on: Like "The Donald's" campaign, it's going to be anything but a smooth ride.

"We continue to believe that a push higher by Trump or victory in November could result in heightened volatility," Credit Suisse's chief U.S. equity strategist Lori Calvasina wrote in a report to clients Thursday.

It's not just the uncertainty regarding Trump's policies that Credit Suisse believes is giving traders agita. History shows that since 1990 whenever the presidential party switched, the VIX had surged into election day.

The S&P 500 is "quite expensive" and as a result is "more vulnerable to bad news than good news," Calvasina adds.

The CBOE Volatility Index, or VIX, is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices, according to the CBOE. The VIX closed at 12.02 on Thursday.

"If the VIX spikes, our best guess is that it would move up to the 20-30 range, similar to what was seen in the 1992 and 2000 elections when a change in White House party also occurred," she said.

"In 1992, the VIX spiked from 12 to 21, and was accompanied by a 5.3% drop in the S&P 500 and a 4.5% drop in the Russell 2000. We think this is a decent point of comparison, and note that S&P 500 P/E's also appeared to be extended at the time."

In terms of the sectors that will do better if Trump continues to gain ground: "We find that Health Care (including both major industry groups and most sub groups) and Financials (particularly Banks and Insurance) have been most closely aligned with Trump's polling numbers so far in 2016...This may be due to perceptions that Trump is more favorable than Clinton for both sectors from a regulatory perspective."

Here are six stocks in the health care and financial sectors Credit Suisse says will be "winners" if Trump gets elected.