KEY POINTS

  • Trading surges around elections are normal, but a fraught presidential election could exacerbate volatility in markets already unstable due to COVID-19
  • Some institutions are even worried demand for transactions could outpace their infrastructure's capacity, with repair made more difficult by remote work protocols
  • Banks have, however, weathered periods of high instability with low staff before

Banks and trading firms are bracing for extended volatility this November as the COVID-19 pandemic and political uncertainty increase risk of an unusually severe trading surge around Election Day.

Heightened trading around a presidential election is nothing new, but this year some markets are concerned that the period could be unusually lengthy and uncertain. A rise in mail-in ballots and the near-certainty of post-election litigation means that it’s unlikely an outright winner will emerge on Election Day or even the days following. The volatility of markets already shaken by the pandemic will only be exacerbated by the stark differences in the candidates’ economic policy and overall vision for the U.S.

Stock trading is only getting more accessible with time, especially as apps like Robinhood give individuals without much experience easy access to leveraged transactions. Those masses of day-traders are likely to add to volatility. 

Some banks are concerned that the frenzy of short-term trading could be severe enough to cause problems with financial infrastructure. Any issues with latency could be made worse by remote work policies, limiting financial employee’s efforts to recover should some of their technology falter.

Guy Warren, the chief executive officer of ITRS, a group that helps businesses manage their infrastructure, told Bloomberg that predicting what parts of a system will fail can be difficult.

“People are deploying more infrastructure and the questions come down from above, ‘How close to capacity are we, what latency are we having?’” he said. “Most people can’t work out what will choke until it’s crashed.”

Bloomberg additionally reports that most banks won’t even have half their staff on-site come Election Day due to COVID-19. Still, banks have weathered these conditions before.

Bloomberg additionally reports that most banks won’t even have half their staff on-site on Election Day due to the pandemic. Still, banks have weathered these conditions before. In March, markets experienced extreme volatility and workers were sent home for the first time. Andrey Kuznetsov, senior credit portfolio manager with Federated Hermes, told the Wall Street Journal in August that banks had learned from the ordeal and developed countermeasures.

“It’s impossible to retest the levels of volatility we saw in March. The amount of central bank support in place already is a game changer,” he said.

Others cautioned investors that economic policies aren’t always a bellwether for the economy overall, and trying to use election winners to set investments could backfire.

Bruce Weininger, a senior financial advisor for Kovitz, told CNBC in August: “Don’t let politics get in the way of money. There is no evidence Republicans are better for investments. … If you let politics drive investment decisions you will have bad results.”