Here are the most volatile days for stocks before the election, according to the options market

By Joseph Adinolfi

The stock options market is bracing for wild swings on Nov. 6, the day after the U.S. presidential vote. But these days before the election could also see big moves, according to BofA Global Research.

Traders can finally relax a little this week as the calendar for U.S. corporate earnings reports and economic data looks relatively light - a welcome contrast to the drama of last Wednesday's Federal Reserve decision.

But they better enjoy the calm while it lasts because the next six weeks until the Nov. 5 U.S. presidential election are littered with potentially market-moving news.

Chief among them are economic reports that could help investors get a better sense of where the U.S. labor market stands after the Fed opted to cut its policy interest rate by 50 basis points last week.

Fed Chair Jerome Powell justified the unusually large cut as a "recalibration" of policy to try to stave off further weakness in the job market.

Some see revisions to the jobs data and an uptick in the unemployment rate over the past few months as a sign that the U.S. economy is at risk of a more rapid slowdown. Others have pointed to a jumble of data, including strong retail-sales reports, which suggested that U.S. GDP likely continued to expand at a brisk pace during the third quarter.

Partly because of this lack of clarity, the monthly jobs reports for September and October are expected to have the most market-moving potential before Nov. 6, according to a team of strategists at Bank of America, who plotted what options traders are expecting each day before expiry.

Traders anticipate swings of more than 1% in either direction on Oct. 4 and Nov. 1, when the September and October jobs reports are due to be released.

Two other economic reports also have notable market-moving potential: the September CPI report, due Oct. 10, and the September retail sales report, on Oct. 17.

Options are also bracing for a roller-coaster ride during the week that starts on Oct. 21, one of the busiest of the coming third-quarter earnings reporting season. The week will feature results from Alphabet Inc. (GOOGL) (GOOG), Microsoft Corp. (MSFT), Meta Platforms Inc. (META) and Amazon.com Inc. (AMZN)

"Looking ahead, S&P options suggest that the next two NFP prints are the main catalysts until the election...in agreement with our econ team's view. CPI and retail sales are seen as smaller risks, while this week is expected to be the quietest until at least Nov. The big 3Q earnings week (Oct. 21-25) is another major catalyst to watch," the team wrote in a report shared with MarketWatch on Monday.

But Nov. 6, the day after the election, is expected to be the most volatile for stocks by a wide margin, with the S&P 500 index expected to move 2.5% in either direction.

Volatility traders are also betting on a wild ride on election day, as evidenced by elevated prices on futures contracts tied to the Cboe Volatility index.

Some expect the vote could be contested, or that the results might initially be too close to call, according to Matt Thompson, co-portfolio manager at Little Harbor Advisors.

U.S. stocks were surrendering more of their post-Fed decision gains on Tuesday after finishing higher last week. The S&P 500 SPX was off by 15 points, or 0.3%, at 5,703 in recent trade. The Nasdaq Composite COMP was off by 60 points, or 0.3%, at 17,914.

The Dow Jones Industrial Average DJIA was up marginally at 42,127, and on track for a fresh record closing high.

While this week's economics calendar is light, it isn't completely barren. Investors will digest the latest reading on second-quarter GDP growth, as well as the August reading on the PCE Price Index, the Fed's preferred inflation gauge, later in the week.

On the earnings front, results are due from Micron Technology (MU) and Costco Wholesale Corp. (COST)

-Joseph Adinolfi

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09-24-24 1054ET

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