US election night strategy for share market investors; how to track and interpret early results

US President election 2020 is just a day away, and polls suggest Democrat Joe Biden’s lead in nationals. Investors might be confused as to how to track election night, as this will be all about when markets will conclude who has won. Michael Zezas, Head of Public Policy Research and Municipal Strategy, Morgan Stanley, in a recent podcast said that for investors, election night would not necessarily be when a candidate has conceded, or when the media calls the winner; rather, it could hinge on moments when the markets conclude who has won.

Also Read: Market risks and opportunities from 4 possible US election outcomes 

Road to knowing result on election night

Michael Zezas said that 65 per cent of Florida mail-in ballots have been returned, and around 56 per cent of North Carolina ballots. There’s a possibility that investors can know the election result early in the night as both the states can count those votes and quickly release it upon poll closing. For instance, if President Donald Trump loses Florida then he has probably lost the Presidency. Similarly, if Joe Biden wins the North Carolina Senate race, then that would be a hint that Democrats have taken control of the Senate by also winning seats in other close races. However, there are slow counting states as well such as Michigan, Wisconsin and Pennsylvania. But Zezas expects that markets would bake it in pretty quick.

It is possible that due to an expected widespread use of mail-in voting, a winner will not be known for days as states will tally ballots. The candidate that receives a majority of the 538 electoral votes, or at least 270 votes, will win the presidency.

What investors must watch out for

According to Michael Zezas, investors should watch out for the treasury market. Jitters will continue to remain ahead of the November 3, 2020 election. Zezas explains as treasury yields will trade throughout the night overseas, it may prove to be a good indicator for election outcomes, which could drive fiscal policy in different ways. “An early night outcome, which would probably coincide with a Democratic sweep, could lead yields to rise quickly, to pricing substantial deficit expansion,” Zezas said. However, if the race is close, and takes longer for cues from slower counting states, Zezas said that Treasury yield moves could be more muted, accounting for the possibility of a divided government and fiscal gridlock.