US Presidential Election Winner May Not Be Declared Immediately... Goldman Sachs Says Market Concerns Are "Excessive"

[US Election 2024]

Concerns have been raised that the winner of the U.S. presidential election this November may not be confirmed immediately after the vote, potentially increasing uncertainty in the financial markets. However, Goldman Sachs, a leading Wall Street investment bank, has pointed out that these concerns are exaggerated.

On the 29th (local time), Goldman Sachs stated in a memo to investors, "We acknowledge that tail risks exist," but added, "Market participants are somewhat overestimating the likelihood that the financial markets will fail to reflect the expected election outcome on the night of the election or early the next morning." Tail risk refers to risks that have a low probability of occurring but can have a significant impact if they do.

Locally, with just a week left until the election, the race remains extremely close, leading to expectations that the confirmation of the winner could be delayed beyond initial projections. According to the Associated Press, in the 2012 election, victory declarations were reported after 11:30 p.m. Eastern Time on election night. In 2016, the declaration came in the early morning of the following day, and in 2020, it was only possible on the morning of November 7, four days later. This is due to the varying methods of counting mail-in ballots by state and the intense competition in the race.

However, Goldman Sachs expects that the counting of votes will be faster than in the 2020 election due to changes in state-level ballot processing methods following the pandemic. They also noted that polls showing a tight race within a 1 percentage point margin may not have accurately reflected the actual Electoral College vote.

In the 2020 election, the most recent one, Democratic candidate President Joe Biden won against Republican candidate former President Donald Trump, but the actual margin was significantly narrower than poll-based expectations. According to the analysis by the election analysis site FiveThirtyEight (538) just before the election, President Biden had an 8.4 percentage point lead nationwide, but the actual victory margin was 4.5 percentage points.

Since 1988, nationwide polls in U.S. presidential elections have shown an average error margin of 2.3 percentage points. Additionally, in the seven battleground states that decide the outcome, an average error margin of 3.1 percentage points has been observed since 2000.

Goldman Sachs explained that based on the last two elections, market volatility tends to coincide with Tokyo market trading hours. They analyzed that the market moves more significantly based on early vote counts from key counties rather than the timing of victory declarations (race calls). Goldman Sachs stated, "In both 2016 and 2020, most of the foreign exchange volatility occurred within the first few hours," adding, "By the afternoon session of the New York market the day after the election, volatility generally returned to normal levels."