Prepare for market volatility but don't panic trade, analysts say ahead of Election Day

• Market analysts predicted choppy trading and sharp swings going into the US presidential election.
• Donald Trump and Kamala Harris are locked in a tight race, fueling uncertainty among traders.
• One analyst said economic fundamentals matter more to markets than who becomes president.

Market analysts are braced for volatility ahead of Tuesday's presidential election as traders shuffled their bets on a Donald Trump or Kamala Harris victory.

The Republican and Democratic candidates are neck and neck in many polls, fueling uncertainty in the finance world over who'll emerge triumphant, and clouding the outlook for everything from tax and trade policy to corporate regulation and geopolitics.

One analyst underscored the critical importance of the election in research notes on Monday, while another touted economic fundamentals as more important to markets and predicted long-term investors would likely win over time.

Meanwhile, the Federal Reserve is expected to cut interest rates by 25 basis points on Thursday, while China's central bank is set to unveil some form of economic stimulus measures later this week.

Here's a roundup of analysts' comments:

Naeem Aslam, chief investment officer at Zaye Capital Markets

"US and European stock futures are trading flat as traders continue to focus on one thing and one thing alone, and that is the US elections. Basically, there is nothing else that matters; it is not going to be earnings that would move things in the markets, and it won't be the US jobs noisy number that would make traders think about the US economy. The only thing that is going to keep them occupied is the US election and who will become the next president of the most powerful country in the world."

Joshua Mahony, chief market analyst at Scope Markets

"A shift in the polls seen over the weekend signal the potential for a Harris victory in Iowa; with a surge in the older female demographic signaling a shift that many believe could carry Harris to victory. Coming at a time when markets appeared to have taken a Trump victory as a given, the polls are a timely reminder that betting markets may not be the best indication of who will become the President of the United States.

"The election looks significantly more of a contest than many had been expecting, which could provide a more protracted and volatile period ahead as we see potential recounts and challenges to potentially drag out this process."

Principal Asset Management

"Despite short-term volatility, historical trends reveal that equities have consistently posted strong gains by the end of a presidential term, underscoring the benefits of maintaining a long-term investment perspective. The drivers of market performance — economic growth, corporate earnings, and innovation — ultimately outshine the impact of political changes.

"Investors should take caution. Those who allow their political opinions to cloud their investing decisions could miss out on the potential rewards that come with staying invested in the market over the long-term."

Hal Cook, senior investment analyst at Hargreaves Lansdown

"With the election being an effective coin toss, betting on a specific outcome doesn't seem sensible. Instead, remember that diversification is your friend."

Kathleen Brooks, research director at XTB

"The main US blue-chip index is up 20% year-to-date, which does not suggest that the market is seriously pricing in the risk of civic violence after this election, which could rock financial markets and cause a global wave of risk aversion.

"An interesting development leading up to this election is that financial markets expect Trump to win, and the Trump trade has performed well in recent weeks, as you can see in the chart below. The Trump trade is a stronger dollar, weaker bonds/ higher bond yields and stronger crypto. With one day left of this campaign, the dollar is falling, and the dollar index is at a two-week low. Thus, if Harris does win on Tuesday we could see a rapid unwinding of this trade, a sharp weakening of the dollar and intense volatility in the FX and bond market.

"We expect Monday and Tuesday to be quiet for markets, however, once we get the first drip feed of results on Tuesday night and Wednesday morning, expect fireworks."

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