Election Night Trading Guide: Key Timings, Key Focus Points, Will There Be Delays?

The U.S. presidential election will be held next Tuesday, and the market is closely monitoring every move in the election situation. Due to the fact that the results of the 2020 presidential election were not revealed until four days after the election day, there are concerns that this year's election may experience the same situation, and the delayed announcement of the election results could bring significant uncertainty to the market.

However, Goldman Sachs recently released a research report stating that the market has overestimated the risks of uncertainty caused by the delayed announcement of election results. Goldman Sachs indicated that the counting speed for this election may accelerate, and it may not be as close as reflected in the polls. Financial market trading may reflect the election results on the evening of election day or the following morning, with key county-level election results becoming the focus of market attention. Although there may be slight fluctuations in the initial hours on election night, the market is expected to return to normal levels thereafter.

Will the election results be delayed?

Goldman Sachs believes that even though current polls show a tight race, the final electoral vote margin may not be as close. From a state-level perspective, based on popular election models, the likelihood of a "tight race" leading to a recount is estimated to be only about 6.5%, and the probability of a close situation where the vote margin is within 2 percentage points is only about 25%.

The research report states that the possibility of a recount in key swing states is even smaller. Considering that cross-state polling errors often correlate within specific demographic groups, it is possible to obtain relatively clear results early on election night, and shortly thereafter have enough information to judge the likely final outcome. The uncertainty of polls, related errors, and the Electoral College's "winner-takes-all" mechanism together make the probability of extremely close election results in key swing states relatively low.

Moreover, the election results this year may be announced slightly faster than in 2020. Overall, some states have modified their "processing" rules for ballots, which include verifying signatures and preparing ballots for counting machines. For example, Michigan will now begin processing early voting ballots up to 8 days before the election, whereas in 2020, this process only started at noon on election day.

Although some states may process ballots faster, others may experience slightly slower processing times. However, there should still be sufficiently broad information available early in the election. For instance, North Carolina and Florida typically report most of their counting results quickly after voting ends, and Pennsylvania's second-largest county is also expected to announce all mail-in ballot results immediately after voting ends this year.

More importantly, the delay in announcing the 2020 election results was primarily due to the surge in mail-in ballots during the pandemic. Although the proportion of mail-in voting this year is expected to be higher than in 2016, the number of mail-in voters should decrease this year as many temporary pandemic voting policies have been lifted. In 2020, all states considered the pandemic a valid reason to apply for mail-in ballots or temporarily implemented "no-excuse" absentee voting, but this year, only Virginia and New York will still allow "no-excuse" absentee voting.

Key Timelines?

The research report analyzed the actual foreign exchange market fluctuations during the 2016 and 2020 elections. The analysis suggests that during the 2016 and 2020 elections, the vast majority of foreign exchange fluctuations occurred within the first few hours after the election results were announced. Although volatility remained elevated during London trading hours, the post-election New York afternoon market typically returned to "normal" levels.

The report indicates that voter turnout and many other factors leading to polling errors often show correlation across states, therefore, generally, in the early stages of election night, sufficient information obtained from states that report votes quickly can allow the market to roughly determine the likely winner of the presidential election before the official announcement of results.

Coupled with the possibility that this year's vote counting process may be slightly faster than last time, the report predicts that the most likely scenario is that even if some "false signals" occur in the first few hours of election night, the market will still be able to identify the potential winner by election night or the following day, similar to 2020.

While the possibility of extremely close election results, delayed announcements, and prolonged market fluctuations cannot be ruled out, Goldman Sachs expects that the impact of delayed final election results on the market will be far less than the anticipated victory news released by the media. Even if polls show a tight race, this does not guarantee that the final results will also be close.

Key Points of Focus?

Goldman Sachs believes that the market fluctuations are not primarily driven by major media announcements of vote counts, but rather by results from key county-level elections. The report notes that county-level election results often have strong correlations across different election weeks, and their changes help predict trends in other areas, so even small and consistent changes can forecast results elsewhere.

For example, during the 2020 election, the USD/CNY exchange rate reacted strongly to news that the Democratic victory margin in Miami-Dade County was much smaller than expected, but when the Associated Press announced the predicted winner a few hours later, the market had already largely adjusted, indicating that the election result in that county was an outlier. In the following hours, swing states released similar county-level vote counts, allowing the market to reverse the earlier expectation of a Trump victory before these states announced their final results.

Additionally, Goldman Sachs also pointed out that the congressional election results may not become clear as quickly, and determining control of Congress may take longer, especially since the majority of seats in the House may depend on the election results of a few seats in California, where there is a significant proportion of swing districts, and past vote counting often exceeds a week.

Therefore, the market may need more time to assess the overall impact of the election results. While the foreign exchange market is particularly focused on the presidential election results and their impact on U.S. trade policy, control of Congress will determine the outcomes of fiscal policy, which is an important factor for the interest rate market.