How traders are preparing to watch volatile US election night

For the big money on Wall Street, there’s the prep that’s bound to come with a coin-toss election that could dramatically swing policy. Trading desks staffed through the night, with teams in Hong Kong and Singapore enlisted to help. Tracking popular ‘Trump trades’ -- long the dollar, short bonds -- ready to pile in or quickly unwind, Bloomberg reports.

And then there are the steps taken for an election season like no other. One London-based hedge fund primed its “shock” computer model especially for this moment. Banks are preparing for the risks, however remote, of civic violence -- a prospect that would shake the US, the world and global financial markets.

“November 5 is going to be a blindfolded mud-wrestle in a minefield,” says Calvin Yeoh, a portfolio manager at Blue Edge Advisors in Singapore. “The election is so tight and path-dependent that it makes it very difficult to trade.” JPMorgan Chase & Co plans to increase staffing in Europe and Asia to handle overnight volume and volatility; Goldman Sachs Group Inc. expects to have hundreds from its sales and trading teams on-site in New York well into the night, with more ready to log on from home. Across the industry, US employees are gearing up for all-nighters.

“We will stay as long as we need -- if that’s 2am, it’s 2am. If we have to sleep over, which we haven’t yet done on an election night, we will,” said Glen Capelo, who spent more than three decades on Wall Street bond-trading desks and is now a managing director at Mischler Financial Group. “We do think there’s a lot that could happen.” As Kamala Harris and Donald Trump make their final case to voters, the finance industry is gaming out the implications of a historically close race in a polarized moment. Right now, the markets say Trump will win. Stocks are up, as is the dollar and crypto. Bond yields have climbed. If Harris ends up victorious, popular Trump trades could be rapidly reversed, creating big market gyrations overnight.

Equity options volatility has been climbing in recent weeks even as the stock market was relatively calm, a sign that investors are putting on hedges to protect against post-election swings.

Whoever prevails will inherit what today appears to be a surprisingly resilient US economy. Economists say the plans Trump has proposed, notably, tax cuts and import tariffs, would do more to increase the national debt and inflation than Harris’s program. Whoever wins the Oval Office, the next administration will touch virtually every industry and investment. Right now, though, Wall Street, like much of the rest of the country, simply wants to make it through next Tuesday. New York City hedge fund managers are particularly concerned ahead of Tuesday’s US presidential election, said Marko Papic, chief geopolitical strategist at BCA Research. “I’m trying to talk about stock or bond trades, and the chief investment officer wants to know if I think civil war can happen in America,” he said.

Swing state polls have rarely been this tight so close to the vote. But even if Trump wins, traders are underestimating the potential impact of hours and days of delayed or contested results, said Marc Sumerlin, founder of Evenflow Macro, who worked on economic policy in the George W Bush administration. “I don’t think investors are bracing much for Election Day volatility outside of what’s normal because the mood has shifted from not knowing who will win to seeing a favorite now: Trump,” he said. “People are putting that on, instead of hedging election uncertainty.”

Barring an unambiguous, decisive victory at the polls on Tuesday, traders will turn to incremental reporting through the night. Early results from Michigan, which adopted new rules to speed up the counting of absentee ballots, could indicate the trajectory for Pennsylvania and Wisconsin, which begin processing mail-in votes later.