While many on Wall Street consider the November presidential elections to be the most “immediate threat” to the global economy, markets may be setting up for a fall even before that date.
That’s because most investors anticipate that Democratic presidential nominee Hillary Clinton will take the White House by a landslide, said Bank of America Merrill Lynch’s Head of Global Rates and Currencies Research, David Woo in an interview with CNBC Monday. As a result, investors, the professionals at least, have positioned their portfolios accordingly.
But that level of certainty from investors leading up to the November elections, a period that has been historically volatile for markets, is risky. According to Woo, there’s a “very good chance” that Clinton’s lead will narrow, triggering more volatility in September and October. And if that happens, bonds and stocks could drop.
“That is going to be a shock to the market,” he said. “We saw that on this past Friday—bonds sold off and stocks sold off. That’s the kind of situation that becomes self-fulfilling.”
Previously, a team of Citigroup analysts also warned that most investors expect a Clinton win. That means markets could be in for a deeper shock should Trump become commander-in-chief.