This Tuesday's US election is bound to be dazzling, investors need some patience and a plan to find direction in the noise, rather than get lost in it.

On Monday, November 4th, Michael Zezas, director of fixed income research at Morgan Stanley, published an article stating that the main goal for investors in this election should be to enhance their awareness of the current market conditions and avoid being overly confident about the election results and their market impact.

To this end, Morgan Stanley has proposed 3 strategies to help investors adjust their expectations:

Patiently await the election results.

In recent weeks, there has been a growing expectation in the market for the Republicans to take the White House. Morgan Stanley stated, "This is certainly possible, but we believe it is not the most likely outcome." Currently, both candidates do not have a significant lead in many states, considering the potential bias in opinion polls, so the election results cannot be determined at this time.

Moreover, Morgan Stanley believes that the long and noisy vote counting process from 2020 may be repeated.

Although mail-in voting (VBM) has decreased compared to four years ago, it is still higher than historical levels, which may delay the counting. In crucial swing states, the results of mail-in voting could slowly erode the seemingly solid position of the current leading candidate.

Therefore, Morgan Stanley believes that investors are best to carefully observe the results, gradually adjust their expectations based on continuously updated information, rather than rush to conclusions.

Be skeptical of popular opinions.

Many people can guess the election results, but few can correctly guess the reasons behind them.

Morgan Stanley states that understanding which signals can predict election results requires comparing voter lists with pre-election polls, often requiring months of post-data collection and analysis.

Therefore, Morgan Stanley does not place too much emphasis on poll results, nor does it agree with the view that 'the poll systematically favors the Democratic Party and will once again underestimate Trump's support rate', because poll errors are often symmetrical. In the past few elections, polls have also underestimated the support rate of the Democratic Party.

Morgan Stanley states that the current polls and early voting data are not reliable enough, 'distinguishing them from noise is unwise.'

Do not overinterpret short-term market fluctuations.

Morgan Stanley states not to overinterpret short-term market fluctuations, but rather to compare current asset prices with possible policy directions - post-election short-term market reactions are often chaotic, but subsequent public policies may drive lasting trends.

For example, the market has long believed that a Republican victory would lead the USA to impose import tariffs on Mexico, putting pressure on the Mexican peso. In the past few months, the Mexican peso has significantly depreciated, consistent with market expectations. More importantly, due to global trade policy-related risks (tariffs, negotiations such as the USMCA agreement) and local policy uncertainty, a bearish outlook remains on the Mexican peso in the medium term.

According to analyst Matthew Hornbach of Morgan Stanley, US bonds are also going through a similar situation. After the Republican victory in 2016, US bond yields rose sharply, possibly because the market expected tax cuts to be implemented, which would then drive economic growth and expand the fiscal deficit. The Republican Party has also put forward similar policy agendas in this election, so if the Republican Party wins the White House and the House of Representatives, it may push up long-term US bond yields.

However, Morgan Stanley also pointed out that the possibility of US bond yields showing a short-term reaction similar to that of 2016 is small, because Trump's victory will not surprise the market too much, and investors' expectations are already based on market reactions after 2016, and also, the global monetary policy stance is significantly different from before.

Regarding stocks, sectors (such as finance, industry, etc.) recently thought to benefit from Republican policies have performed well, while some stocks significantly related to tariff risks have performed poorly. Morgan Stanley stated that if the Democratic Party wins, these recent market fluctuations may reverse, but this should not be seen as a signal for long-term macro expectations.

Editor/ping