Three Immediate-Term Scenarios for the November 5th U.S. Presidential Election
Genevieve Signoret & Delia Paredes
(Hay una versión en español de este artículo aquí.)
We see three scenarios for the November 5 U.S. presidential election. These scenarios pertain exclusively to the immediate term, meaning, the space of just the few days or weeks following November 5. Given Nate Silver’s electoral forecast model results, we assign equal subjective probabilities to all three scenarios. We are unable to assign even subjective probabilities to the immediate-term market response to any of the three. All we can say is that, should Trump win clearly, the peso will likely depreciate sharply against the dollar.
Scenario A: Harris wins clearly
Scenario A is that of a clear win for Harris. Trump and his followers dispute the result via legal mechanisms and rioting.
Scenario B: Trump wins clearly
In Scenario B, Trump wins clearly, and Harris accepts the results.
Scenario C: The vote is too close to call
In this final case, Scenario C, the vote is too close to call, and neither candidate accepts the results. Recounts and legal challenges begin.
Immediate-term market reactions cannot be foreseen
We are unable to assign even subjective probabilities to what the immediate market reaction would be in any of these scenarios. We can say only that a clear win for Trump would almost surely spark an immediate sharp drop in the value of the Mexican peso against the U.S. dollar.
Markets dislike uncertainty, which two of the three scenarios would generate, Scenarios A (a clear win for Harris but disputed by Trump followers anyway) and C (no clear winner) but not B (a clear win for Trump recognized by Harris). This suggests that A or C would, in the immediate term, be a negative market event. But markets will be reacting also to the composition of Congress. Remember, when it comes to domestic policy, U.S. presidents are rather weak. Therefore, there’s really no telling how markets would react to either of these two scenarios.
What about Scenario B? Some Wall Street portfolio managers like tax cuts, and Trump has promised tax cuts, making Scenario B a potentially positive market event. But others worry about his inflationary policy proposals, so things could go the other way.
In other words, we can come up with a story to support just about any immediate-term market response to the outcome of the presidential election. In all three of our scenarios, markets are as likely to soar as they are to crash, move little, or be flat.
TransEconomics delivers serenity to high–net-worth families and individuals. To learn more, request an appointment with an advisor.