Investing.com -- Fears surrounding post-election risks are “overblown,” Citi strategists led by Daniel Tobon said in a Thursday note.
Although the U.S. presidential race remains tight, any resultant uncertainty should not significantly disrupt the transfer of power, and they assert that American institutions are well-prepared to handle a contested outcome.
Market participants and analysts have spent months scrutinizing polls and betting markets only to conclude that the election is a statistical toss-up.
Citi acknowledges this election cycle has heightened attention around possible disputes post-election, but the bank views the probability of a significant, market-disrupting contestation as low.
“A common narrative this election cycle has been around increased risks post-election if a candidate attempts to overturn the results,” strategists said.
“We find the risk of a successful overturn to be very low, and would really require an outcome that is very close to have any potential in working,” they added. “We expect the institutions will work as they should, and the transfer of power on inauguration day (to either Harris or Trump) will properly reflect the election outcome.”
As for the immediate market impact, Citi highlights that the foreign exchange (FX) market could react with notable two-way volatility.
A Trump victory may trigger a 3% rally in the U.S. dollar, while a win for Harris might see the dollar fall by approximately 2%, underlining the “binary nature” of the election outcome.
Citi maintains that FX, given its 24-hour liquidity, will likely be one of the “cleanest” asset classes to monitor during election night. They believe that pairs like USD/MXN, USD/CNH, USD/JPY, and EUR/USD should all "be on investors’ radars on election night."
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, particularly in states like New York and California, a final House decision could stretch for weeks.
“There is a possibility that markets may have to wait a week or two to know which party will control the House,” Tobon and his team pointed out.
As such, they advise investors to focus on specific swing-state bellwether counties on election night, especially those with a history of fluctuating support across the last two presidential elections.