We provide a crude estimate of the probability of overturning the election results. A measure of the probability is important because the expectation in case of successful challenge may be highly negative. Access to full article requires Premium Insights subscription.
Equity markets are rallying because of news about successful completion of a number of vaccine trials and also expectations of the new administration in US turning the money printers on after January 21, 2021. In other words, markets are discounting inflation and higher equity prices. The rising bond yields are a clear indication of those expectations and downtrend may accelerate when election outcome is finalized.
However, there is a small probability of a “white swan” and Trump succeeding overturning the election outcome. How high is this probability? In this article we calculate a crude estimate. Note that probability of outcomes is not very useful and what is important is the expectation. We believe that the expectation from overturning the outcome of the elections is highly negative due to liquidation of positions in equity markets linked to forecasts of lower inflation and even negative yields in case the previous economic policy stays in effect.
Disclaimer: No part of the analysis in this blog constitutes a trade recommendation. Read the full disclaimer here.