Morgan Stanley analysts predict serious short-term market volatility after November’s presidential elections

Morgan Stanley analysts have warned investors that the incoming U.S. presidential elections could severely impact financial markets with heightened volatility. According to analysts, election results are likely to be delayed, which historically has caused uncertainty and speculation and has led to spontaneous market shifts.

The Head of Policy at Morgan Stanley Wealth Management, Monica Guerra, and the U.S. Policy Strategist at Morgan Stanley Wealth Management, Daniel Kohen, have predicted heightened volatility in the financial markets due to the upcoming presidential elections.

In a recent publication, the duo cautioned investors that volatility emanates from economic uncertainty and unpredictable voters’ decisions. With elections just days away, new reforms are likely to affect the financial markets.  

Morgan Stanley analysts expect delayed election results  

The analysts believe the election results may face potential delays, creating uncertainty and speculation. Guerra and Kohen referenced historical data from past election cycles, concluding that the period of uncertainty could spark spontaneous market shifts from different undecided investor sentiments.

“Delayed election results introduce a period of uncertainty and speculation, which historically has resulted in elevated levels of short-term market volatility.”

-Monica Guerra and Daniel Kohen

The analysts’ report revealed that during the 2020 election, the CBOE Volatility Index (VIX), used as the stock market’s “fear gauge,” witnessed a 40% spike for three days after the election until the winner was officially announced.

According to the analysts, signs of the delayed presidential election results include the slow process of counting mail-in ballots in different states. Guerra and Kohen believe twenty-three states will only begin to count their ballots on election day, while 15 states will commence the counting process after polls close on election day.

The duo also believes the tight race between the Democratic and Republican presidential aspirants will contribute to delayed results. The thin margins, especially in swing states vital in clinching the electoral college vote, could cause a slowdown in results or lead to legal disputes. According to Guerra and Kohen, the election delay could last days or even weeks.

Investors urged to focus on the business cycle and market performance

The two Morgan Stanley analysts urged investors to keep their eyes focused on the broader business cycle, which is more relevant to market performance than the election results. The analysts said they expect a competitive final sprint from the main candidates, Donald Trump and Kamala Harris, with campaigns and proposals in a bid to sway more voters to root for them as the election nears.

According to CNN polls published on October 25th, Donald Trump and Kamala Harris are in a tight race. The poll conducted by SSRS found that 47% of likely voters will vote for Kamala Harris, while an equal 47% will vote for Donald Trump. A September poll from CNN also split the voters into almost identical portions. Trump got 47%, while Harris got 48%.