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By Tom Lee, CFAChief Investment Officer, Equities and Derivatives, Parametric

Minneapolis - While the situation now is unique, it's not entirely unexpected. We knew heading into Election Day that a surge of mail-in voting increased the chances that no winner would be declared on Tuesday.

According to the New York Times, 22 states and the District of Columbia allow postmarked ballots to arrive after Election Day, meaning the timing of finalized election results depends in part on when voters return their ballots.1 Markets will tolerate the uncertainty in the short term, as long as it appears we're moving toward a final decision. However, the markets will be less welcoming if the election turns into a protracted legal battle.

Volatility erupted when the US presidential race between Al Gore and George W. Bush in 2000 resulted in no clear winner. Stocks fell as the contested election dragged on through the month. By the end of November 2000, the S&P 500® Index had declined by nearly 10%, while the Nasdaq Composite plummeted 19%.2 Investors sought defensive sectors and asset classes — such as consumer staples and gold — and sectors expected to benefit under a Republication administration — such as energy — rallied.3

Bottom line: We may be facing more of the same. Heading into this presidential election, the Cboe Volatility Index (VIX) indicated that investors expected volatility would surge substantially in Q4 compared with Q3. This murky Election Day result could make that vision a reality.

1 New York Times, "How Long Will Vote Counting Take? Estimates and Deadlines in All 50 States" by Alicia Parlapiano, Updated November 4, 2020. https://www.nytimes.com/interactive/2020/upshot/vote-counting-today-polls-election.html

2 Bloomberg Opinion, "Markets Aren't Great at Handling Contested Elections" by Stephen Mihm, September 2, 2020. https://www.bloomberg.com/opinion/articles/2020-09-02/2020-trump-vs-biden-election-lessons-from-bush-vs-gore-2000?sref=0lpENdAK

3 CNBC, "Worried about contested election? Here's what went down in stocks during 2000 Bush-Gore battle" by Eric Rosenbaum, October 26, 2020. https://www.cnbc.com/2020/10/26/contested-election-what-went-down-in-markets-during-bush-gore-battle.html

S&P 500 Index is an unmanaged index of large-cap stocks commonly used as a measure of US stock market performance.

Nasdaq Composite is an unmanaged index of the common stocks and similar securities listed on the Nasdaq stock market.