US stocks: Expect high drama, anti-climactic end for 2016

IF WE were to write a script for the US stock market through the end of 2016, it might include a bit of suspense, a few potential surprises and, ultimately, an anti-climactic ending.

The lead characters in the drama would most certainly include two unpopular presidential hopefuls, as the Nov 8 election is likely to factor into equity market volatility in these final two months leading up to the vote. This US presidential election season is unusual, and not only for its polarising candidates and vast policy differences. It also features equity market volatility at historically low levels.

Past precedent shows a pick-up in equity volatility ahead of presidential elections. This year has been different, with realised volatility at half the level seen at this point in the 2012 presidential cycle despite higher political uncertainty. In fact, realised equity volatility today is at the lowest level seen at this time in any presidential election year since World War II.