I’m not sure how to think about how the market will react to the election and subsequent turmoil.
The EMH tells us all the information should already be priced in, but I don’t quite see how. Either I’m wrong about what could possibly happen or the markets won’t be affected by these scenarios the way I think.
There are roughly three outcomes of the election:
- Trump wins.
- Biden wins in a landslide.
- Biden wins in a non-landslide.
Trump probably has a chance of around 10-15 percent of winning. In which case Biden will concede and the left will have some protests (probably not more significant than the George Floyd protests).
But if Biden wins, it’s a whole different story.
538 puts a Biden landslide at around 30%, in which case Trump will likely concede. Protests will be not huge, I expect.
But the other 55-60% is where it gets interesting.
Trump has repeatedly said that he won’t concede as he can only really lose if fraud occurs. He laid the grounds for his followers to distrust the results of the election. Going as far as possibly planning to call the election for himself prematurely (although I’m not sure how trustworthy this particular information is).
Weird outcomes, where Trump looks like he’s winning on election night but ultimately loses are quite probable. This is due to democrats being more likely to vote by mail, which has become far more common because of the pandemic.
In the end, it’s quite possible that millions of die-hard followers of Trump will feel as if the election was stolen from them. And Trump will only stoke their anger.
(Which also scares me, since they are typically well armed and many of them have already sympathised with armed militias.)
Even if not likely: What would happen to stock markets, when 20% of the country with the largest economy are sent into a state of civil unrest?