Former Reagan economist Art Lafarge weighs in on concerns about the American presidential election process.
According to the Goldman Sachs Group, markets are increasingly predicting that the 2020 election results will be delayed.
Concerns over excessive breaches of the system due to the flood of mail-in ballots and the days or weeks of calculations that can take place could lead to an increase in the price of fixed volatility until the opening on January 20, 2020.
According to analysts Michael Cahill and Alec Phillips, vote counting rules vary significantly by state and markets should be given enough information to be able to determine a potential winner, as the delayed result is just a “tail risk”. Goldman Sachs.
“In other words, S&P can trade the potential outcome, even if the AP doesn’t call a race,” they wrote.
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Investors worry that the election winner may not be known for weeks or months, perhaps until the opening day, which will increase the value of the hedge against such a result.
Monthly prices for volatility contracts in S&P 500 futures typically trade with a contract spread from one contract to another or a quarter of a so-called wall point. Last week, however, was a six-point spread between September and November, ranging from 17.5 to 23.5. It was until January 24th.
U.S. Similar external prices have been found in the Treasury market, where volatility is six times higher than normal. Before the 2001 election, it was three times its normal level and twice the standard before the 2012 and 2008 elections.
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Anthony Saliba, CEO of Matrix Execution Group, a Chicago-based executive broker-dealer specializing in options and equities, said in Fox Business last week that the level of such volatility around the election has caused many surprises.
Like Goldsmith analysts, Saliba believes we can know the winner on election night.
Such a result would “remove the air from instability,” he said.
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While Goldman believes the markets should signal a winner on election night, or soon after, the pay firm has warned its analysts have little warning.
Many states are trying to change the rules in terms of how long votes will be counted after election day. Others, including on the battlefields of Michigan and Pennsylvania, are trying to get the vote count process started sooner.
In addition, even if the winner of the presidential election is known, Cahill and Phillips said it could be more difficult to determine the winners of the Senate race.
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Analysts say the legal challenges in the states are “the risk of a very small tail”, as they will need to win by a small margin in both the Electoral College Ledge and the specific state.
While we know that a particularly unpredictable election outcome can have a significant impact on the sense of risk, we feel that this outcome is less likely than current market prices – and client negotiations, they wrote.
