Goldman Sachs: Investors May Be Overstating the Risk of Market Uncertainty Amid Unclear U.S. Election Outcomes

Goldman Sachs Group stated that global investors are exaggerating the risk of financial markets being plunged into uncertainty if there is no clear winner in the upcoming U.S. presidential elections next week. In a note, Michael Cahill, Lexi Kanter, and Alec Phillips from Goldman wrote, "While we accept the possibility of tail risk, we believe market participants are somewhat overstating the likelihood that a delayed result will prevent financial markets from reflecting possible election outcomes on election night or early the next morning."

Looking at the last two elections as a guide, Goldman found that much of the volatility in currency markets emerged during the Tokyo trading session when the first vote counts began to come in. The bank noted that the reporting of early results, rather than race calls, was the primary driver of currency movements, particularly at the county level.

Strategists stated, "In both 2016 and 2020, the vast majority of currency volatility occurred in the first few hours of the results. While volatility remained somewhat elevated during London trading hours, things generally returned to 'normal' by NY afternoon on the day following the election."