- Investors view the upcoming US presidential election as a key risk to the stock market, as uncertainty looms around who will win, what policies will be implemented by the winner, and whether the election will be contested and dragged out for longer than usual.
- But JPMorgan said the markets are “overly concerned” about the upcoming election, according to a note published on Wednesday.
- Here are three reasons why the market risks surrounding the US election are set to be priced out, according to JPMorgan.
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Investors are overestimating the risk associated with the upcoming US presidential election, especially the chance of it becoming a contested election that drags out for months, according to a Wednesday note from JPMorgan.
The process of investors adding risk exposure after the peak of the COVID-19 pandemic has slowed in recent weeks as the US election is seen as the “key event risk” over the rest of the year.
While the election does pose uncertainty to investors in the sense that who will win the office and what future policy initiatives will be implemented remain unknown, the probability of a months-long contested election is low, JPMorgan said.
Here are three reasons why the market risks surrounding the US election are set to be priced out, according to JPMorgan.
1. “An extended period of election uncertainty is very unlikely.”
JPMorgan notes that while a surge in mail-in ballots could leave the official results not immediately known, the process of collecting, validating, and counting votes should be complete in two to three weeks after Election Day.
“Some of the outcomes may be challenged in state courts and even be escalated to the Supreme Court, but the process will likely move fast if the disputes are largely procedural. All this should leave sufficient time for each state to then send its predetermined number of electors to the Electoral College to vote for the winner of the state’s election on December 14,” JPMorgan said.
“The possibility of the losing party refusing to accept the outcome is seen to be extremely low … All in all, it is highly likely the result will be known in a matter of days/weeks rather than months,” JPMorgan added.
2. “The conclusion of the election could be value positive either way.”
No matter who wins the upcoming election, value stocks could see a boost for a number of reasons, JPMorgan said.
To start, a conclusion to the election would remove risk from the market that should benefit value. Also, a fiscal stimulus plan under either winner should quickly materialize, and the priority of both Trump and Biden would be to quickly reopen the economy in a safe manner, assuming a potential winter spike in COVID-19 cases is manageable, according to JPMorgan.
3. “US-China frictions may not worsen if Trump is re-elected.”
“We believe the pace of rhetoric heading into the election is elevated to make a point, and should not be taken literally for how fast this can be translated into action. We believe it is likely that a re-elected Trump administration will take a pause to reassess their options even if the end goal remains one closer to de-coupling than reengagement,” JPMorgan said.
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