Risk of Delayed U.S. Election Result Overestimated, Says Goldman

Risk of Delayed U.S. Election Result Overestimated, Says Goldman

Goldman Sachs Group says “traders should temper their fears that a delayed U.S. election result could upend markets,” according to a recent article in Bloomberg.

Two of the firm’s economists recently wrote that while a delayed outcome poses some risk, a combination of factors (including early voting) will probably offer enough information on election night to indicate a likely winner.

“In other words,” they noted, “the S&P can trade the likely outcome, even if the AP does not call the race.”

The article reports that the cost of hedging against a delayed result is getting more expensive. According to Goldman, the high level of uncertainty priced into currency options may be due to “muscle memory” related to the 2016 election. The firm notes that the uncertain growth outlook in the midst of the coronavirus pandemic means this election should be less decisive for market direction.

The Goldman team argued, “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.”