Election Risks and Market Reactions

Investing.com — Fears surrounding post-election risks are “overblown,” according to Citi strategists led by Daniel Tobon in a Thursday note.

Although the U.S. presidential race remains tight, any certain uncertainty should not significantly disrupt the transfer of power. The strategists assert that American institutions are well-prepared to handle a contested outcome.

Market participants and analysts have scrutinized polls and betting markets, concluding that the election is a statistical toss-up. Citi acknowledges that this election cycle has heightened attention around possible disputes after the election, but they view the probability of a significant, market-disrupting contestation as low.

The strategists noted, “A common narrative this election cycle has been around increased risks post-election if a candidate attempts to overturn the results.” They believe the risk of a successful overturn is very low and would require an outcome that is very close to have any potential for success.

Citi expects that institutions will operate properly, and the transfer of power on inauguration day (to either Harris or Trump) will reflect the election outcome.

Market Impact

Regarding immediate market impacts, Citi highlights that the foreign exchange (FX) market could see notable two-way volatility. A Trump victory may trigger a 3% rally in the U.S. dollar, while a Harris win might see it fall by approximately 2%, illustrating the “binary nature” of the election outcome.

Citi suggests that FX, given its 24-hour liquidity, will likely be one of the “cleanest” asset classes to monitor during election night. They recommend that investors keep an eye on currency pairs like USD/MXN, USD/CNH, USD/JPY, and EUR/USD during the election.

Citi also forecasts that while the presidential race may yield prompt results, control over the House could face delays. In key districts where outcomes remain uncertain, especially in New York and California, a final House decision may take weeks.

They pointed out, “There is a possibility that markets may have to wait a week or two to know which party will control the House.” Therefore, they advise investors to focus on specific swing-state bellwether counties on election night, particularly those with fluctuating support in previous presidential elections.