For Wall Street, as a highly impactful election affecting fiscal and monetary policies approaches with an unpredictable outcome, meticulous preparations are essential - many trading desks of various investment banks have already arranged overnight shifts, with teams from Hong Kong and Singapore even invited to join in the action.

And for those closely tracking the "Trump trades" during this period - such as longing the US dollar and shorting US bonds, they are prepared to increase investments or quickly close positions at any time.

Some institutions have taken a series of additional measures to deal with this unprecedented election season: a hedge fund based in London has specifically built an algorithm model called "Shock" for this moment, while banks are preparing for the risk of ​​terrible post-election violence in the USA, no matter how small this risk may be - the mere existence of this possibility will still shake the USA, the world, and the global financial markets.

"November 5th will be a 'blindfolded' mud fight in a minefield," said Calvin Yeoh, portfolio manager at Blue Edge Advisors in Singapore, "the election results will be very intense, and the path dependency is strong, making trading very challenging."

JPMorgan is currently planning to increase the number of employees in Europe and Asia to cope with the surge in overnight trading volume and volatility; Goldman Sachs expects hundreds of employees from its sales and trading teams to work late into the night in New York, with more employees preparing to work from home. ​Employees throughout the industry in the USA are preparing for overnight work!

The Final Game

As Harris and Trump make their final statements and campaign to voters, the financial industry is currently playing the historically closest election's impact in this polarized moment.

In recent weeks, the market has been more inclined to believe that Trump will win - in this context, the U.S. stocks have risen, as well as the U.S. dollar, U.S. bond yields, and cryptos. However, if Harris ultimately wins, those popular 'Trump trades' may quickly reverse, causing significant market fluctuations overnight.

Recently, even though the stock market has been relatively calm, the options volatility indicators for U.S. stocks have continued to rise. This indicates that investors are increasing their hedging activities to guard against market volatility after the election.

In the long run, no matter who wins between Trump and Harris, it seems that they will 'inherit' the remarkably resilient U.S. economy. Economists generally believe that Trump's proposed governing framework, especially corporate tax cuts and tariffs, are more likely than Harris's plans to lead to increased national debt issuance and inflation. Regardless of who wins the Oval Office, the impact of the next administration will touch almost every industry and investment.

Compared to these medium- to long-term trends, what Wall Street and most investment banking institutions in other parts of the United States are truly focusing on right now is probably just trying to 'get through' Tuesday.

Marko Papic, Chief Geopolitical Strategist at BCA Research, stated that hedge fund managers on Wall Street are particularly concerned about Tuesday's U.S. presidential election. 'I'm talking to stock or bond traders, and some chief investment officers are even asking me if I think the U.S. will have a civil war.'

In the past, it has rarely been this close to election day when swing states show such a close situation in the polls. Marc Sumerlin, founder of Evenflow Macro who was responsible for economic policy in the Bush administration, said that even if Trump wins, traders underestimate the potential impacts of delayed election results by hours or days or the controversies involved.

'I don't think investors are making too many preparations beyond the norm for election day volatility because people's sentiment has shifted from uncertainty to now seeing a popular candidate: Trump. People are considering the possibility of him taking office, rather than hedging against election uncertainty,' Sumerlin pointed out.

Be fully prepared.

Many traders today may still remember the painful experience of the 2016 election vividly. At that time, the polls clearly favored Hillary Clinton, and almost no one considered what a Trump victory would bring. However, as the election results became clear, the prices of US stock futures plummeted and then gradually recovered. The two days following the election were also the most active trading days in the second half of the year in the US stock market. In 2020, Biden did not officially declare victory until four days after the election ended; after the election results were announced, trading volume in the market also hit a six-month high.

It can be foreseen that the longer it takes to announce the winner of the election, the more difficult it will be for traders to assess the driving factors of the market trends—especially this time, as the Federal Reserve's rate decision in November will come out two days after the election ends.

Mark Dowding, Chief Investment Officer of RBC BlueBay Asset Management based in London, stated that during his recent visit to the United States, he had conversations with dejected Democrats and excited Republicans, and he now believes there is a 70% chance of Trump winning. Dowding pointed out that on election night, he would be in the United States watching closely for any local developments, and he expects the market to react the next morning to new expectations on tariffs, trade, and foreign policies.

In the large institutions on Wall Street, executives have also indicated that as the election day approaches, they expect an increase in election-related trading. At least one major investment bank will halt technical updates in the following days to avoid any glitches during crucial trading times. Retail banks, especially those with many branches, stated that they are closely monitoring potential violent incidents in cities, especially in swing states where the election results may be disputed and the vote count may not be revealed for days or weeks. If there are prolonged protest activities, they may close branches or allow employees to work from home.

Fulcrum Asset Management, a hedge fund based in London, has been considering political influences. Its 'Shock model' tracks data from betting markets and political polls for months to evaluate how different asset classes will change as the election results become clear.

The company's team in the UK typically does not trade at night, but during this election season, its portfolio managers and traders will stay up late, observing any truly unexpected situations. Fulcrum's Chief Investment Officer, Suhail Shaikh, stated that he plans to stay in the office until 6 a.m. (1 a.m. Eastern Time) closely monitoring changes in currencies and interest rates.

The lights in the US Treasury Department may also stay on all night on election day.

John Fagan, who was in charge of the Treasury Department's market monitoring team from 2014 to 2018 and is now a partner at Markets Policy Partners, mentioned that volatility is normal—Asian markets sometimes misinterpret subtle movements in the US elections. However, if there is significant fluctuation in US bonds or the US dollar, the head of the Treasury Department's market monitoring team may call on Treasury Secretary Yellen to issue a statement to calm the markets.

Some traders also believe that understanding the Congressional makeup may be more important than who wins the presidency. If the Republican Party controls the House and Senate, it could lead to higher inflation and a sharp drop in the bond market. These traders also point out that a divided Congress usually means a calmer market because it limits the space for major policy changes.

And for many traders around the world, coffee to prevent drowsiness on election day may be indispensable. Fulcrum's Shaikh says, "Given that such significant things are happening, it's really difficult to fall asleep that night; even if you're not trading at this time, you will learn a lot about the market through experiencing these events."

Editor/Lambor