The US presidential election is full of suspense, will the US stock market "hit the brakes" on its rise?

According to the Zhitong Finance and Economics APP, the U.S. presidential election is in a fierce and tense state, and investors may face unclear or controversial election results, which could dampen this year's stock market rally.

With less than a month to go until the election, opinion polls and prediction markets show that Democrat Kamala Harris and Republican Donald Trump are almost evenly matched. A Reuters/Ipsos poll released on Tuesday showed Harris leading Trump by a slim margin of 46% to 43%, making the situation more intense compared to the same poll results a few weeks ago.

Given Trump's attempts to overturn the outcome that favored Biden in 2020, investors expect that a close election result this year could also be contentious. The balance of power in Congress is also at risk, and some potential evenly matched competitions may exacerbate this uncertainty.

Walter Todd, Chief Investment Officer at Greenwood Capital, said, "This will be a closely contested election. The likelihood of some type of dispute is higher than average, which is reasonable." He expects that if the election results remain uncertain for more than a few days, the stock market will experience selling pressure.

Todd said, "The market doesn't like uncertainty, and people certainly don't want to be in the dark about who the U.S. president is for a day or two after the election."

So far, political uncertainty does not seem to have dampened investors' enthusiasm for the stock market. In recent days, strong U.S. economic growth has driven the S&P 500 index to new highs. The benchmark index has risen by 21% year-to-date, poised to achieve double-digit gains for the second consecutive year.

This is not to say that investors are not paying attention to the election. The Chicago Board Options Exchange Volatility Index (VIX), which measures options demand for stock market volatility in the next 30 days, has risen by about 6 points from its September low to 20.9, a level typically associated with moderate to high expectations of market turbulence. Investors say that part of the reason for the increase in this index is the upcoming election.

The options market also reflects heightened concerns about tail risks, which are market shocks triggered by events that are unlikely but have a significant impact. The U.S. National TailDex Index, which measures such risks, recently hit its highest level in a month.

Michael Purves, CEO of Tallbacken Capital Advisors, believes that investors are overly focused on the days before and after the vote, and the fiercely contested election in the weeks following November 5th may disrupt the market.

He said, "Rather than being about the election result, it's more about the potential risks after the election, where most people think this election is invalid." "To me, this is a real risk... litigation outcomes could lead to a sell-off in the stock market."

There have been few precedents of challenged elections recently. Trump's attempt to overturn the 2020 election results had virtually no impact on the market. Despite Biden not being officially declared the winner until the weekend after Election Day, the U.S. stock market rebounded in the remaining trading days of that week However, investors may not be as optimistic this time, especially if either party challenges the evenly matched outcome and gains support from other legislators and election officials in swing states.

For months, Trump and his allies have been hinting that they will challenge the election if they lose, repeatedly claiming concerns about a large number of non-citizens voting, despite independent and state assessments showing this practice to be very rare.

At the end of 2000, the U.S. stock market experienced a significant decline when the competition between Bush and Gore remained unresolved for over a month, as Gore's campaign team challenged the election results in Florida, marking one of the most contentious election cases in recent U.S. history.

From Election Day in 2000 until Gore conceded in mid-December, the S&P 500 index fell by 5%, with market sentiment weighed down by concerns about technology stocks and the overall economy. The index declined by 7.6% overall from November to December 2000.

Such fluctuations could cast a shadow over the typically strong performance of the stock market in election years. Keith Lerner, Co-Chief Investment Officer at Truist Advisory Services, stated that since 1952, the S&P 500 index has averaged a 3.3% increase in the final two months of presidential election years, with 78% of the time seeing gains.

Purves from Tallbacken Capital suggested that investors hedge potential volatility related to the election by using put option contracts. The value of put option contracts rises when the stock market falls.

Kurt Reiman, Head of Fixed Income for the Americas at UBS Wealth Management and Co-Head of ElectionWatch, remains generally positive about U.S. stocks. However, he advised investors to consider popular safe-haven assets such as utility stocks and gold to cushion their portfolios against risks in a contested or disputed election.

Stephanie Aliaga, Global Market Strategist at J.P. Morgan Asset Management, stated that once uncertainty dissipates, any volatility caused by a contested election may be alleviated.

She said, "Elections bring uncertainty, but the election results ultimately reduce this uncertainty." "Ultimately, as uncertainty is removed, investors will see a near-term boost or rebound post-election."