Wall Street is ‘Promise Prepping’ for elections. It may not be necessary

“It was chaos,” said Invesco’s chief investment strategist Christina Hooper. “I went away last night thinking that the chances of contesting elections are high.”

Many expected a dirty debate. It certainly was.

“It seems as if a year’s dumpster fire caused a debate of a dumpster fire,” Raymond James’ Washington policy analyst, Ed Mills, wrote in a note to customers.

Chris Krueger of the Cowen Washington Research Group argued that the characterization is charitable. “By definition, dumpster fires are contained,” Kruger joked in a customer report.

But some wonder whether electoral pessimism dominates Wall Street. The risk of anarchy may already be priced.

Investors rarely panicked even after a debate that was widely slammed as a national embarrassment. After initially retreating overnight, the Dow opened solidly and was recently up 350 points or 1.5% on expected fiscal stimulus.

Keep in mind that when they are caught off guard in a setback (like an epidemic or a financial crisis), they spoil the market. But nothing here should come as a surprise at this point. For months, futures contracts linked to the VIX Volatility Index have indicated that investors are buying insurance against market turmoil around the election. In early July, Goldman Sachs and others flagged off the incident.

What can ‘catapult markets higher’

If many investors are in the worst case scenario, the market can react quite positively if the nightmare does not occur.

Cross-asset macro strategist Charlie Nomligot at Nomura Securities argued in a Tuesday afternoon report that the scenario “underpresented” by volatility markets is “one where it does not realize the ‘extended chaos’ scenario.”

He also pointed to the expected conclusion to the election or the possibility of a “big, clear-cut Biden electoral victory”.

Investors fear that winning the US election is not decided for weeks - or even months

This risks a situation where all “dooms day prepping” is increasingly unheard of by investors, McElligott wrote, a result that “may be higher in catapult markets.”

Despite the fact that a Biden victory, coupled with Democrats waving the Senate, would be cause for concern about higher taxes and increased regulation.

McElligott stated that his analysis shows the risk of “crash-UP”, rather surprisingly than “crash-dock”.

One of the major uncertainties is how long it will take to count the surge of mail-in ballots that is expected due to the epidemic. Some states have not started that process until Election Day. Others accept mail-in ballots received after Election Day, if they are marked by a certain date.

But Raymond James analyst Mills has pointed out that major battlegrounds like Arizona and North Carolina can count mail-in ballots before election day – and they can telegraph the winner to the result markets.

Mills wrote, “This result may come sooner than a long-running process.”

Why is this election different

Of course, no one knows for sure how it will turn out.

There are very valid reasons for investors to be more concerned about contesting elections.
Top of the list is Trump’s repeated attempts to spread germs about mail-in voting and baseless “rigged election” claims.

“They are sending millions of ballots across the country,” Trump said. He said: “It’s going to be a hoax like you’ve never seen.”

Those comments made by Trump during the debate, and so on, raise questions about the peaceful transfer of power.

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“We’ve been very blessed in presidential elections,” said Hopper of Invesco. “Even in 2000, when it was unclear what the outcome was, it was sorted and decent. There is a fear that it may not happen this time. And it could lead to more volatility and sales.”

Nothing, investors expect a clear, undisputed winner. And if that happens, soon afterwards, it could set off a knee jerk rally on Wall Street.

“That voice you may have heard,” Hooper said, “There will be many, many investors boycotted everywhere.”


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