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Joe Biden and Donald Trump
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Goldman Sachs is warning that the upcoming presidential election could see delayed results, and is therefore recommending that clients hedge their market bets through December in anticipation of heightened volatility through November.
Goldman Sachs Chief U.S. Equity Strategist David Kostin said that a number of factors could delay the results beyond November 3, including a rise in mail-in ballots as Covid-19 keeps people from voting in person.
“Given the several-week delay in finalizing the results of the 2000 presidential election … the elevated volumes of mail-in ballots used in recent primary elections, and potential for increased mail in ballots this November, we see heightened risk that election-related volatility could extend beyond Election Day,” he said Tuesday night in a note to clients.
Kostin noted that traders in the options market seem to believe the next president might not be announced on Nov. 3. Looking at that market, he noted that implied volatility around the election is “extremely high compared with prior cycles.” Some of this has to do with the ongoing impacts of the coronavirus, of course, but the especially high level of implied volatility directly before and after the election suggests that traders believe the outcome could be uncertain.
Given this, Kostin told Goldman clients they should hedge their market exposure into December in order to stem any losses incurred from a non-definitive election result.
“Although the 20-Nov option expiration offers two additional weeks of cushion beyond 3-Nov, the potential for delayed results, a precedent for extended vote-counting, and a slightly inverted term structure lead us to prefer extending hedges to the 18-Dec quarterly expiration,” he said.
“For context, it took 34 days for the winner to be decided in the 2000 contest between George W. Bush and Al Gore,” Kostin added.
– CNBC’s Michael Bloom contributed reporting.
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