Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Goldman Says Markets Overestimating Election Result Delay Risk

Published 2020-09-24, 08:55 p/m
Updated 2020-09-24, 09:27 p/m
© Reuters.

© Reuters.

(Bloomberg) -- Traders need to reduce expectations that a delayed U.S. election result could upend markets, according to Goldman Sachs Group Inc (NYSE:GS).

While a delayed outcome is a “tail risk,” a combination of early results, voter turnout, county-level data and the high correlation of polling errors across states suggests investors will have enough information on election night to determine the likely victor, wrote economists Michael Cahill and Alec Phillips in a note Thursday. A number of states -- including some key battlegrounds -- allow votes to be processed and counted well before election day, they noted.

“It seems fairly likely that there should be enough information on election night from states that will report results quickly for the market to be able to gauge the likely winner,” the pair wrote. “In other words, the S&P can trade the likely outcome, even if the AP does not call the race.”

With the attention of many investors turning toward November’s elections as a source of risk, the cost of hedging against a contested or delayed result is getting ever more pricey. One measure in the equity market shows the most-expensive event risk on record. Among traders’ biggest fears -- an expected record number of mail-in ballots that may not be counted for days.

Goldman says the high level of uncertainty priced into currency options may be due to “muscle memory” of outsized moves in some crosses from the 2016 vote. The uncertain growth outlook amid the Covid-19 pandemic means this election should be less decisive for market direction, they said.

“While we recognize that an especially uncertain election outcome could have a significant negative impact on risk sentiment, we think this outcome is less likely than current market pricing -- and client conversations -- seem to imply,” the Goldman team concluded.

©2020 Bloomberg L.P.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.