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Markets may be downplaying the chance of a contested election, says Invesco’s Kristina Hooper

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U.S. election and markets: Invesco's top strategist on what to expect

Wall Street is watching Washington, D.C.

The U.S. presidential debate and President Donald Trump's positive Covid diagnosis sent reverberations across the stock market in the past week.

Invesco's top strategist said investors should brace for more volatility this month even if markets recover from recent weakness.

"Typically when markets are shocked by something like President Trump's Covid-19 diagnosis or the attempted assassination of Ronald Reagan, there tends to be a short-term drop and then, of course, a recovery," Kristina Hooper, the firm's chief global market strategist, told CNBC's "Trading Nation" on Monday. "What I do think we need to expect going forward is more volatility as we get closer and closer to the election."

Democratic challenger Joe Biden's firm lead in the polls has introduced some semblance of clarity to the presidential election over the past week – Biden shored up his support in recent polls after last week's debate. However, Hooper said investors should still be prepared for a lack of certainty on election night and possibly in the days and weeks afterward.

"We should assume there could be, there could very well be a contested election and operate based on that. Now that doesn't mean doing anything different with one's portfolio, but it does mean expecting more volatility, and again, viewing it as an opportunity if one has cash that they're looking to deploy," Hooper said.

In a separate call with CNBC, Hooper said investors should take Trump at his word when he avoided an outright commitment to accept the results of the election. She said the president appears likely to challenge the results if Biden is declared the winner. This, rather than the polls, points to the possibility of a contested election and the higher chances for volatility, she said.

Barclays on Monday said markets are now pricing in lower chances of a contested election.

While markets hate uncertainty, Hooper urges long-term investors to stay the course and filter out the day-to-day noise.

"Put blinders on. Sit tight and ride it out because this is likely to be very, very short-term volatility," she said. "This should be a short-term blip. We will have someone inaugurated in January. And so it's important to keep a long-term focus, maintain good diversification broadly … within asset classes. And of course, we can look opportunistically to stock market dips as an opportunity to pick up stocks at lower prices, but we can't be scared in this environment."

The presidential election is scheduled to be held Tuesday, Nov. 3. Biden opened a 10-point lead over Trump in a recent Reuters/Ipsos poll released Sunday.

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