Don’t read too much into near-term election reactions, Morgan Stanley says

Investing.com — With the U.S. election fast approaching, Morgan Stanley is cautioning investors not to make hasty market moves based on early election results or media coverage.

Instead, the investment bank argues that public policy choices should ultimately matter more than any initial market reactions.

According to Morgan Stanley, while prediction markets have been leaning toward a Republican win, this outcome remains far from certain.

“Neither candidate has a sufficient lead in enough states to label them a meaningful favorite,” analysts said, suggesting a close race.

They advise investors to “hurry up and wait,” noting that the increased use of vote-by-mail (VBM) may cause extended vote counting, especially in swing states where results can shift dramatically as mail-in ballots are tallied.

The firm also urges skepticism regarding “hot takes” in the media.

The bank notes that confident early predictions often miss key factors, with polling data rarely providing a fully reliable preview of the outcome.

“Polling errors over time tend to be symmetrical,” they noted, pointing out that polling missteps in the past haven’t consistently favored one political party over the other.

For those tracking the immediate market response, Morgan Stanley believes it’s best to focus on medium-term policy shifts rather than short-term moves, which can be misleading.

For instance, they explain that while a Republican win might traditionally signal near-term pressure on the Mexican peso, the peso has already weakened recently due to Republican strength in prediction markets.

Similarly, the firm sees U.S. Treasury yields as potentially rising under a Republican-led administration, but cautions that a 2016-style reaction is less likely given today’s distinct monetary policy backdrop.

Ultimately, Morgan Stanley advises caution in interpreting any swift post-election market moves, with analysts recommending patience as the best approach amid this period of heightened volatility.