Election uncertainties cause rippling effect on economy

Published: Monday, Oct. 29 2012 9:22 p.m. MDT

GOP presidential nominee Mitt Romney and President Barack Obama shake hands as moderator Bob Schieffer looks on during the third presidential debate.

Charlie Neibergall, Associated Press

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With only a week left until the elections, recent polling figures show the presidential race to be essentially a toss-up. As the capital markets thrive on certainty and generally pale before uncertainty, the high degree of doubt about who will be the next president of the United States continues to send ripples through the domestic markets.

One measure of estimated future volatility in the U.S. stock market is the VIX index. Traded on the Chicago Board Options Exchange, the VIX is an index often used to reflect the market's view of future stock market price volatility.

The VIX index is currently at a level of just over 18 percent. Looking over the past month or so, the VIX has ranged between a low of just over 14 percent up to a high of just under 19 percent. When markets are perceived as more unstable or less predictable, the VIX generally increases. At times of relative calm or more certainty in the overall marketplace, the VIX tends to decrease.

Over the past 52 weeks, the high on the VIX is about 37 percent and the low about 13 percent. Over the same time frame, the VIX has averaged 16 percent. Many factors influence the overall perceived level of uncertainty in the financial markets. At this time of the election cycle, the neck and neck status of the presidential election is likely a material contributor. How the next president will treat some of the significant issues facing the nation will have differing implications for the U.S. economy.

Near the top of the "to do" list for the next president is the upcoming fiscal cliff. Given the relatively subdued economic growth, allowing the full effect of the fiscal constraints imbedded in the fiscal cliff to take effect would most likely dampen the current prospects for meaningful economic growth in the near term. Not that either president-to-be can resolve this on his own. Congress will have to contribute to any resolution process.

As the proposed economic, monetary and fiscal policies of the two candidates differ significantly, the path the U.S. economy will follow is further obscured. Until transparency is improved on these economic issues, the capital markets will continue to ebb and flow as the latest polling results are reported.

Kirby Brown is the CEO of Beneficial Financial Group in Salt Lake City.

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