Goldman Sachs Group Inc. has stated that global investors are exaggerating the risk of financial markets facing uncertainty due to a delayed result in the upcoming US presidential election. According to a note from Goldman’s Michael Cahill, Lexi Kanter, and Alec Phillips, market participants are overestimating the likelihood of a delayed outcome preventing financial markets from reflecting the election result on election night or the following morning.
Goldman’s viewpoint is supported by several factors. Firstly, the close state-level and national polling data is masking what is expected to be a wider victory margin in the electoral college. Additionally, changes in how states handle ballots following the pandemic are expected to expedite the vote-counting process compared to 2020.
Analysis of the past two elections by Goldman reveals that most of the currency market volatility occurs as the initial vote counts are reported during the Tokyo trading session. The announcement of crucial county-level results, rather than the declaration of winners, significantly impacts exchange rates in the early stages of reporting results.
“In both the 2016 and 2020 elections, the majority of FX market volatility occurred in the first few hours after results started coming in. Although volatility remained somewhat elevated during London trading hours, the situation generally normalized by the afternoon of the day after the election,” the strategists explained.