It's Election Day in America. Here's the Wall Street playbook
London(CNN Business) Investors aren't political analysts. But from Tuesday into the early hours of Wednesday morning, they'll be glued to the outcome of the US election, a major event that could shake financial markets and generate either big profits or hefty losses.
What's happening: Wall Street is preparing for a long 24 hours. Top strategists told me they'll be pacing between their TV sets and their Bloomberg terminals. They plan to keep close watch on both early results and US Treasury yields, global stocks and the US dollar.
Most of Wall Street is now expecting a "blue wave," where former Vice President Joe Biden takes the White House and Democrats win control of the Senate. While that could lead to higher corporate taxes, eventually hitting stocks, investors are mostly honing in on the implications for additional pandemic relief. They're hopeful that with Democrats in charge, a generous stimulus package north of $2 trillion could be passed quickly.
Most strategists don't expect this result to materialize overnight, however.
"[The] base case is there is no result, but we'll see the facts on the ground," Deepak Puri, Americas chief investment officer at Deutsche Bank Wealth Management, told me.
Andy Lewin, a vice president at BGR Group who advises financial services firms on what's happening in Washington, said that he's telling clients to first scrutinize early results from Florida, North Carolina and Georgia and Arizona. All four of those states went to President Donald Trump in 2016, and a Biden victory could signal the president is heading for defeat.
"Winning one or more [of these] states makes it more likely Biden wins, and markets will react accordingly," Lewin told me.
Attention will then turn to Michigan, Pennsylvania and Wisconsin, which are expected to take longer to tally their votes given the volume of mail-in ballots and when officials can start counting them.
"With those states processing mail-in ballots very late, finishing the first official count [could take] days after the election, resulting in a period of uncertainty," Nomura analysts warned clients.
Margins matter: In a tense election year where many investors are worried about a contested result, margins of victory will be important, according to JPMorgan's strategists.
"A contested election is still likely, but would have less credibility and market impact if election margins are wide and broad," they said in a recent note.
Given the weight investors are putting on fresh stimulus, they'll also be closely watching key Senate races. Maine, North Carolina, Iowa and Georgia are the most important states to monitor, per Nomura.
Remember: Markets could pick winners before news outlets do, given a tendency to search for early "tells." Still, trading is likely to remain turbulent until there's a clear result. Once that happens, stocks could jump no matter who wins, since it would resolve a source of uncertainty.
"While investors should brace for more volatility as investors respond to the outcome of the US election, we believe a more durable rally in stocks is not far away," Mark Haefele, chief investment officer at UBS Global Wealth Management, told clients Tuesday.
Big Tech braces for an unpredictable election
The days — and possibly weeks — after Election Day will be a huge test for platforms like Facebook (FB), Twitter (TWTR) and Google's YouTube.
Social media companies have developed game plans for a range of outcomes. But in an unpredictable year, they could still be caught flat-footed, my CNN Business colleague Donie O'Sullivan reports.
The fears: Doctored videos could spread. Fake accounts could pop up. The president himself — who has declined to say he'll support a peaceful transfer of power if he loses — could even move to undermine election results using his Twitter account.
"My biggest fear at this point is something totally unexpected happening that no one predicted," one Big Tech employee told Donie, who spoke with more than a dozen people who are either employees on teams countering misinformation and extremism at the major social media platforms, or who work directly with those teams.
New rules: Twitter said Monday that it would label tweets making "claims about election results before they're officially called," including assertions made by candidates and campaigns. Facebook similarly has pledged to clarify if vote counting is still in progress should a candidate or party declare "premature victory" before major media outlets call the race.
As tensions run high, one big concern is that divisive online discourse could spark real-world clashes.
"If it isn't a landslide one way or the other, every race that leans one direction and goes another is a potential flashpoint for offline violence," one employee at a major social media platform said.
Twitter said that content "inciting interference with the election [or] encouraging violent action or other physical harms" could receive an additional warning label or be taken off the platform. Facebook has said it's coordinating with state attorneys general and other law enforcement officials responsible for protecting the election.
Up next
Ferrari (RACE) reports earnings before US markets open, and Prudential (PBIP) follows after the close. But for markets, it's all about the US election.
Coming tomorrow: Will there be clarity on the race for the White House and the US Senate? Traders will be glued to the results.
