Stock market fears of delayed US election results 'overstated'

A number of states allow votes to be processed and counted well before election day. File picture: Carolyn Kaster

Traders should temper their fears that a delayed US election result could upend markets, according to Goldman Sachs.

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, according to economists Michael Cahill and Alec Phillips.

A number of states — including some key battlegrounds — allow votes to be processed and counted well before election day, they said.

“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,” they said.

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 is 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.

Bloomberg