Goldman Sachs Group Inc. said global investors are overstating the risk that financial markets will be plunged into uncertainty by the lack of a clear victor soon after next week’s US presidential election.
“While we recognize the tail risk possibilities, we think market participants appear to be somewhat overestimating the probability that a delayed result will prevent financial markets from reflecting the likely election outcome on election night or early the next morning,” Goldman’s Michael Cahill, Lexi Kanter and Alec Phillips wrote in a note Tuesday.
Underpinning Goldman’s view is a range of factors. For one, tight state-level and national polling is obscuring what is likely to be a wider margin of victory in the electoral college. For another, changes to how states process ballots since the pandemic should speed along vote counting compared with 2020, the strategists said.
Looking at the last two elections as a guide, Goldman found that most of the volatility in currency markets pops up just as the initial vote tallies begin coming in, during the Tokyo trading session. The announcement of key county-level results, rather than race calls, is a primary driver of exchange rates as early results are reported, the bank noted.
“In both 2016 and 2020, the vast majority of FX volatility occurred in the first few hours of the results,” the strategists wrote. “While volatility was still somewhat elevated in London trading hours, things generally returned to ‘normal’ by the NY afternoon the day after the election.”
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