US Elections: The Wait for Clarity

With the US presidential race being as closely contested as it is, Michael Zezas explains why patience may be a virtue for investors following Election Day.

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Welcome to Thoughts on the Market. I'm Michael Zezas, Morgan Stanley's Global Head of Fixed Income and Thematic Research.

Along with my colleagues bringing you a variety of perspectives, today I'll be talking about why investors should prepare to wait to get clarity on the US election result.

It's Wednesday, September 25th at 10:30am in New York.

As we all know, markets dislike uncertainty; and one of the biggest potential catalysts between now and the end of the year is the results of the US presidential election. So it’s important for investors to know that the timing of knowing the outcome may not be what you expect.

On most U.S. presidential election days, the outcome is known within hours of polls closing in the evening. That’s because while all votes may not yet have been counted, enough have to make a reasonable projection about the winner.

But that’s not what happened in 2020. Vote counts were tight across many states. A condition that was compounded by the slowness of counting mail in ballots, which was a style of voting more widely adopted during the pandemic. As a result, news networks didn’t make a formal outcome projection until about four days after election day.

Rather than a reversion to the norm of quickly knowing the result for the 2024 election, we expect an outcome similar to 2020. It could be days before we reliably know a result.

The same dynamics as 2020 are in play. Polls show a very close race. And while more voters are likely to show up in person this year, voting by mail is still expected to represent a substantial chunk of ballots cast this cycle. That’s because many states' rules automatically send mail-in ballots to those who voted by that method in the last election. And some recent news out of Georgia underscores the potential for a slower result. The state just adopted a rule requiring all its votes to be hand-counted.

Now, this may not matter if either candidate has enough votes without Georgia to win the electoral college. But if Georgia is the deciding or tipping point state then a longer wait becomes possible. Per the 538 election forecast model, there’s about an 11 per cent chance that Georgia plays this role.

So, bottom line, investors may have to be patient this November. It could take days, or weeks, to reliably project an election outcome, and therefore start seeing its market effects.

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