Major US Investment Banks Prepared for Election Volatility

Major US Investment Banks Prepared for Election Volatility

Major US Investment Banks Prepared for Election Volatility

$DIA, $SPY, $QQQ, $VXX

The major US investment banks, including Morgan Stanley (NYSE:MS), JPMorgan Chase & Co.(NYSE:JPM) and Goldman Sachs Group Inc.(NYSE:GS), are bracing for potential confusion and disorder on financial markets in the wake of Tuesday’s US Presidential election.

Bank preparations ahead of the US election reflect their experience following Britain’s shocking (Brexit) vote to leave the EU in June, when the S&P 500 fell 3.6% the day after the poll.

Morgan Stanley told staff to consider using stop-loss orders, an automated trading mechanism that is meant to sell an investor’s position as soon as a stock hits a preset mark (that does not always work as planned), if the election result causes trading volumes and volatility to spike.

The bank also told advisers in its wealth management unit to prepare for election-related conversations with clients and pointed them to relevant pieces of research, according to a 7 November memo reviewed in house Monday.

Traders expect US stock prices to swing by about 2% in either direction Wednesday, the day after the election, based on the price of S&P 500 index options.

Options on the PowerShares QQQ Trust Russell 2000 ETF, are pricing similarly large swings before the week is finished.

Some banks are projecting a more extreme drop in the event of a victory for Donald Trump, with Citigroup (NYSE:C) estimating that a Trump victory could trigger a 3-5% sell-off for the S&P 500.

After the election, Morgan Stanley will hold a call for financial advisers and clients with CIO Mike Wilson Wednesday morning.

Goldman Sachs is also hosting a call for its private wealth clients led by CIO Sharmin Mossavar-Rahmani according to an invitation sent to clients.

More than 50% of the stock and bond fund managers polled by Northern Trust in Q-3 said they expected the election to cause a large increase in market volatility.

On Tuesday night, when results begin to come in, JPMorgan will have additional traders on duty in New York to back up its Asian trading teams in case of surges in volume, said a bank spokesman.

The extra staffing is similar to what the bank did during Britain’s vote to leave the EU, he said.

On Wednesday morning, JPMorgan will hold conference calls to discuss the election results and investment implications with customers, including private banking clients, investment managers and institutional clients.

A Citigroup spokeswoman described similar plans, including overnight staff in New York on the trading floor.

Monday, the US major stock market indexes saw a technical relief bounce following the longest losing streak since 1980, they finished at: DJIA +371.32 at 18259.60, NAS Comp+119.80 at 5166.17, S&P 500 +46.34 at 2131.52

 Volume: Trade was moderate, with about 890-M/shares exchanged on the NYSE
  • Russell 2000: +5.0% YTD
  • DJIA +4.8% YTD
  • S&P 500 +4.3% YTD
  • NAS Comp +3.2% YTD
HeffX-LTN Analysis for DIA: Overall Short Intermediate Long
Neutral (0.10) Neutral (0.01) Neutral (0.02) Bullish (0.28)
HeffX-LTN Analysis for SPY: Overall Short Intermediate Long
Neutral (-0.15) Neutral (-0.00) Bearish (-0.27) Neutral (-0.17)
HeffX-LTN Analysis for QQQ: Overall Short Intermediate Long
Neutral (-0.09) Bearish (-0.26) Neutral (-0.08) Neutral (0.08)
HeffX-LTN Analysis for VXX: Overall Short Intermediate Long
Bearish (-0.31) Neutral (-0.20) Bearish (-0.35) Bearish (-0.38)

Stay tuned…

 

 

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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