Traders are more focused on economics and earnings than elections: Read

• Citi says the election appears to have less of an impact on stocks compared to previous years.
• Analysts point to a relatively low VIX reading, strong market growth and a rotation into more expensive stocks.
• They say these trends show traders are more focused on economic conditions, the Fed and earnings.

Elections tend to have a strong impact on the market’s path in the run-up to the vote, but traders appear focused on other things this year, Citi analysts said.

Analysts said several market indicators that normally flash ahead of the U.S. election are particularly quiet this year, potentially signaling less concern about the election’s impact on the market than in years past.

Instead of the election, traders are focusing on the U.S. economy and earnings season, analysts say.

“In the run-up to the US election, equity market behavior was not in line with previous elections,” analysts said in a note on Monday. “Overall, this suggests that other risks such as the US macro, reporting season, etc. are more influential than any perceived election risk.”

Analysts pointed to the market’s continued growth in the months leading up to the election. They note that investors typically exit stocks before an election, making the previous month’s performance typically negative.

The S&P 500 is down 0.3% in the past month, but over the past six months, it’s up 10.7% as it continues a strong run. Analysts said the strong performance in the weeks leading up to Election Day was likely due to strong US economic conditions rather than markets taking positions in a “Trump Trade” or a “Harris Trade”.

“US stocks have been very strong this election cycle compared to the past,” analysts said. “The current anomaly has less to do with the market pricing in a particular election outcome and more to do with the expectation of continued interest rate cuts combined with a likely shallower U.S. economic slowdown.”

The Federal Reserve began its easing cycle in September and is expected to continue with a series of 25 basis point interest rate cuts at future meetings. Meanwhile, economists are increasingly expecting a “soft landing” for the US economy as it avoids a steep recession while inflation continues to fall.

A relatively low volatility index reading is another sign that markets may not be putting much stock in the outcome of the election. A low VIX number is rare in election years, analysts said.

“Increased uncertainty should translate into a higher expectation of volatility. Despite this observation, with equity markets making new highs and the VIX being low, it suggests that investors are not too concerned about the outcome of the election,” they wrote them.

As in years past, however, analysts said there was a good chance the market would recover after the election. They said the current market positioning, boosted largely by solid earnings in the last reporting season, positions the stock to rally well after the Nov. 5 vote and potentially climb to new highs in the new year.