Morgan Stanley: In the uncertain environment of the U.S. election, the market should remain cautious

Morgan Stanley's strategist Michael D Zezas suggests that investors' main goal during the U.S. election period should be to establish situational awareness and avoid overconfidence in the election results and market impact. Investors may benefit from adjusting expectations.

He indicates that a rise in the implied probability of a Republican victory predicted by the market has led some people to expect this election will produce a clear result on election night. Morgan Stanley believes this scenario is possible, but not most likely. Neither candidate seems to be an obvious favorite for winning the electoral college vote, so it might replicate the long vote counting situation of 2020.

Given that early voting data has historically performed poorly, Morgan Stanley does not place much emphasis on these figures and advises against overinterpreting short-term market trends. The company states that markets' short-term reactions to elections are often noisy and may not indicate medium-term trends.