Wall Street Braces for ‘Terrifying Risk’ And A 20% Plunge in Just A Few Days
The comments below are an edited and abridged synopsis of an article by Tyler Durden
With an unprecedented number of mail-in ballots, prospects for volatility following the US election are higher than they were a month ago, when concerns initially spiked.
The biggest concern is that a contested election could drag on, for weeks if not months, in a rerun of the contested 2000 election, when it took a Supreme Court challenge and 34 days for the winner to be decided.
As fears about a contested election soar, so does the rhetoric. There is a risk that an unresolved election could put investors in uncharted territory. If there is a constitutional crisis, the loss of political credibility and standing of the US as a stable country could threaten its status as a safe haven with consequences for the economy and for markets.
A victory for either Trump or Biden and rapid election conclusion would likely be welcomed by markets, while a severely contested election could see risk-off and drive 10-year rates lower.
The flipside is that if markets sell off violently and the economic data deteriorate, Washington could facilitate the passage of stimulus even in a highly contentious environment.
Others who are concerned (and likely selling while they can): Brian Gardner, chief political strategist at Stifel Nicolaus, cautioned that markets may not be taking into account a closer-than-expected election and outlined a range of market reactions if chaos prevails following the vote.
Wells Fargo analyst Mike Mayo warned that markets may be in for a choppy ride if the election is contested, and said that a disputed election could hurt bank stocks more than others.
One ominous beneficiary would be cryptos, as a contested election would usher in a period of volatility and might rattle people’s faith in government and fiat currencies. A loss of trust would be good for gold and crypto.