Goldman Says Markets Overestimating Election Result Delay Risk

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Financial system6 hours in the past (Sep 24, 2020 09:27PM ET)

© Reuters. Goldman Says Markets Overestimating Election Consequence Delay Threat

(Bloomberg) — Merchants want to scale back expectations {that a} delayed U.S. election outcome might upend markets, based on Goldman Sachs Group Inc (NYSE:).

Whereas a delayed final result is a “tail threat,” a mixture of early outcomes, voter turnout, county-level knowledge and the excessive correlation of polling errors throughout states suggests buyers can have sufficient data on election evening to find out the possible victor, wrote economists Michael Cahill and Alec Phillips in a notice Thursday. Quite a few states — together with some key battlegrounds — enable votes to be processed and counted properly earlier than election day, they famous.

“It appears pretty possible that there must be sufficient data on election evening from states that can report outcomes shortly for the market to have the ability to gauge the possible winner,” the pair wrote. “In different phrases, the S&P can commerce the possible final result, even when the AP doesn’t name the race.”

With the eye of many buyers turning towards November’s elections as a supply of threat, the price of hedging in opposition to a contested or delayed result’s getting ever extra expensive. One measure within the fairness market reveals the most-expensive occasion threat on file. Amongst merchants’ largest fears — an anticipated file variety of mail-in ballots that might not be counted for days.

Goldman says the excessive stage of uncertainty priced into forex choices could also be as a consequence of “muscle reminiscence” of outsized strikes in some crosses from the 2016 vote. The unsure development outlook amid the Covid-19 pandemic means this election must be much less decisive for market path, they mentioned.

“Whereas we acknowledge that an particularly unsure election final result might have a big detrimental impression on threat sentiment, we predict this final result is much less possible than present market pricing — and shopper conversations — appear to suggest,” the Goldman crew concluded.

©2020 Bloomberg L.P.

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