While pre-election polls overwhelmingly give Hillary Clinton the advantage ahead of tonight’s result, with Reuters reporting “Clinton has 90 percent chance of winning: Reuters/Ipsos States of the Nation”, many banks and brokers – still hurting from the Brexit calamity – aren’t taking chances. Some of the more prominent industry names, such as Morgan Stanley, JPMorgan and Goldman Sachs are bracing for potential tumult on financial markets after Tuesday’s U.S. election should Trump win.
As the outcome of the most bitterly fought U.S. presidential elections starts to roll out by Wednesday in Asia, the regional markets will be the first to trade on the results. Reuters writes that as a result, Asia-focused banks HSBC and Japan’s Nomura Holdings Ltd are among institutions boosting staff levels, while others are raising the margin requirements for trading to cope with a possible spike in volume or volatility.
In the United States, Morgan Stanley told staff to consider using stop-loss orders if the result causes trading volumes and volatility to spike. MS also told advisers in its wealth management unit to prepare for election-related conversations with clients and pointed them to relevant pieces of research. Most banks have already scheduled early Wednesday morning calls to institutional clients to guide them on what next steps will be in either outcome.
Meanwhile, traders expect the S&P to swing by about 2% in either direction on Wednesday based on the price of S&P 500 index options. Options on the PowerShares QQQ Trust Russell 2000 ETF, are pricing similarly large swings before the week is out.
Some banks are projecting a more extreme drop in the event of a victory for Republican Donald Trump, with Citigroup Inc estimating that a Trump victory could trigger a 3 percent to 5 percent sell-off for the S&P 500.
That said, the reaction may be more muted should Hillary be the winner as the vast majority of market participants expect: the “market pretty much told you who was going to win today,” one capital markets official at a major bank who was not planning any extraordinary staffing measures told Reuters. Another official at a rival bank said Monday’s 2.2 percent rally in U.S. stocks had lowered Wall Street’s collective angst over the election from “DEFCON 4 to DEFCON 2,” referring to the U.S. Defense Department’s levels of alert.
