WATCH | Stress Testing the US Presidential Election

With the US presidential election now less than seven weeks away, many clients have been asking us how to forecast market returns ahead of this pivotal event. It’s a fair question, but a challenging one, to be sure.

We used the Axioma Risk platform to conduct a transitive stress test simulating a 20% drop in each of the five FAANG stocks, calibrating the correlation between them and the other stocks in the STOXX USA 500 using data for the past three months, and estimating the impact on the index portfolio for this scenario.

In this post, we focus on the Health Care sector. A Trump/Republican win would likely put Obamacare in jeopardy—and that could have a large impact on the earnings of companies in that sector.

The global equity market recovery continued in the third quarter, as benchmark risk slid. But not all components of risk participated in the decline, and volatility remained much higher than it was when the year started.