Goldman Sachs Group Inc. said global investors were exaggerating the risk that a clear winner could not be found in the immediate aftermath of next week’s U.S. presidential election, plunging financial markets into uncertainty.
Goldman’s Michael Cahill and Lexi Kantor said: “While we recognize the potential for tail risk, market participants are concerned that delayed results will allow financial markets to reflect expected election results on election night and early the next morning.” “I think we’re slightly overestimating the possibility that we won’t be able to do that.” wrote Alec Phillips in a memo Tuesday.
A variety of factors support Goldman’s view. First, tight state-level and national polling makes it difficult to see a wide margin of victory in the Electoral College. For another, changes to how states process ballots since the pandemic should speed up vote counting compared to 2020, strategists said.
Drawing on the past two elections, Goldman found that most of the currency market volatility occurs during Tokyo trading hours, coinciding with the first vote tallies beginning. The bank noted that the release of county-level key results, rather than race calls, was the main driver of exchange rates as early results were reported.
“In both 2016 and 2020, the majority of currency movements occurred in the first few hours of earnings announcements,” the strategists wrote. “Volatility remained slightly high during London trading hours, but by the afternoon in New York the day after the election, the situation had largely returned to ‘normal’.”
