Even as Joe Biden consistently leads in national and swing-state polls, bankers on Wall Street are still concerned about the possibility of a contested election.
The notion of a contested election was a focus at a private client meeting held by Goldman Sachs leaders a few weeks ago, according to a person familiar with the gathering.
Some of their clients, according to a person familiar with the meeting, were trying to reposition themselves for what could be an extended period of volatility after Election Day, Nov. 3.
Since then, as Biden opened up a bigger lead in the polls, a handful of Goldman executives have told allies on Wall Street that they are “cautiously optimistic” that there won’t be a post-election battle between the Democratic nominee and President Donald Trump, according to a person briefed on the matter.
Still, some of these banking leaders have privately expressed that concerns about a potential contested election could grow if the polls start to tighten again during the final three weeks of the campaign, this person added. That could potentially add to market volatility.
“Obviously that’s kind of the worst outcome people are worried about. After the last election, and there a lot of people in this camp on Wall Street, no one can trust the polls,” said a corporate restructuring attorney with banking clients. This person declined to be named. Many national polls had then-Democratic nominee Hillary Clinton ahead of Trump going into election night 2016.
CNBC asked JPMorgan Chase CEO Jamie Dimon during the company’s third quarter earnings call whether he is concerned about what could happen on election night.
“I have great faith in this country and I’m sure we’ll have a proper election,” Dimon said on the call.
Trump has repeatedly claimed without evidence that the election could be subject to widespread voting fraud. He has suggested that he believes the election could take months or years to determine. The president reportedly has thousands of lawyers at the ready to push back on election results. Biden’s team has also assembled a strong group of legal advisors.
The election is going to be decided, in part, on what will likely be a historic amount of mail-in ballots as states take safety precautions during the coronavirus pandemic.
At first concerned about a Democratic sweep, analysts now see it as a potential positive since it could result in more economic stimulus. A contested election would be a far bigger concern than a big Election Day for Democrats.
Indeed, as Biden edged toward capturing the Democratic nomination this past summer, Wall Street executives were bracing for a Trump loss and for taxes to go back up. Now, there appears to be a shift from being concerned about an increased tax rate to hoping to have some form of certainty after Election Day.
“Investors may have initially feared a Blue Wave, but a delayed or contested election outcome is even more unsettling,” analysts at UBS said in a recent note.
Bank of America’s fund manager survey shows that 61% of investors polled believe the U.S. election result will be contested. The survey was published on Tuesday.
A leader at one big bank told CNBC that, if polls hold up, the firm’s risk management team expects to a see a shift in sentiment on Wall Street toward not just the anticipation of a sweep by Democrats, but how big a win it could be – and its potential impact on policy.
PricewaterhouseCoopers is among the corporate leaders hearing concerns from clients about a potential contested election.
“Our clients want certainty, and what we’re hearing without a doubt, is they want certainty,” Tim Ryan, PwC’s chairman, told CNBC during a Tuesday briefing on the election. “It’s on their minds, and they just need to know what the playing field is,” Ryan added, referring to the firm’s clients.
The PwC chairman noted that CEOs he has spoken with want a fair election and they are planning for a variety of possible election outcomes.
Charles Myers, the founder of financial advisory firm Signum Global, told CNBC that he senses investment funds are preparing for a volatile few weeks after Election Day.
“I think most funds right now are starting to hedge for a volatile election outcome, and are starting to position for a Biden win,” Myers said.
Other institutions are giving clients a historical breakdown of what a contested election could look like.
In a research note to clients last week, Deutsche Bank gave historical and market based precedents that could play out in a similar fashion next month. One was the 2000 election between Al Gore and George W. Bush. The other was the 1876 contest between Rutherford B. Hayes and Samuel Tilden.
“The last two contested elections, in 2000 and 1876, saw the result in doubt long after election day, with the winner not clear for more than a month afterwards in both cases,” Deutsche Bank said.
The day after Election Day in 2000, Deutsche notes that the S&P 500 fell 1.6%, before seeing further declines.
“In fact, November 2000 was the S&P 500’s worst monthly performance of that year, with an 8% decline from start to finish,” the note says.
Deutsche notes that the fight in 1876 between Hayes and Tilden was worse than the 2000 election because there was no clear winner for months. Hayes eventually won following a compromise.
“As with 2000, a scenario like 1876 – where the election is disputed in multiple states — raises the prospect of a protracted legal battle over the result,” the Deutsche note reads.
– CNBC’s Hugh Son contributed to this article.
