Here’s what could happen to stock markets if the Trump-Biden election results are contested

August 18, 2020, 9:08 PM UTC

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The 2020 election will likely be controversial—in more ways than one.

With a wrench thrown into traditional voting procedures because of the coronavirus pandemic, partisans on both sides of the aisle are already tossing around the possibility of a messy election—and perhaps one where one side contests the results. And for investors, uncertainty means one thing: volatility.

To be sure, even in 2016 when the outcome wasn’t formally contested, markets briefly panicked after Donald Trump secured the presidency, before recovering (and, indeed, rising considerably) in the following days. But when results are debated and investors are left in limbo, things can get especially dicey, analysts at UBS say.

“If history is any guide, we would expect to see some initial equity market volatility as investors grapple with the resulting policy uncertainty,” Thomas McLoughlin, head of Americas fixed income at UBS Global Wealth Management, wrote in a note Monday. “Markets abhor uncertainty.”

Democrats have already raised their concern that Trump will interfere with the election, especially given concerns about the dependability of mail-in voting through the embattled and budget-challenged U.S. Postal Service. Trump himself postulated at a White House event on Tuesday that if the election involved a large number of mail-in ballots, “It’ll end up being a rigged election, or they will never come out with an outcome. They’ll have to do it again. And nobody wants that, and I don’t want that.”

The upshot? Investors should probably buckle up for a bit of a bumpy ride come November.

What happened in 2000?

The most relevant and “instructive” example of what happens to markets when an election result is contested is the Bush-Gore presidential contest in 2000.

George W. Bush, the Republican nominee and then-governor of Texas, lost the popular vote to Vice President Al Gore. The contest was decided in the Electoral College, where the result hinged on who won the state of Florida, where voting tallies were hair-raisingly close. “The subsequent recount was exceptionally time-consuming,” UBS’s McLoughlin writes. The Supreme Court eventually intervened to let stand a preliminary count that awarded Bush the state. Gore conceded, and Bush secured the victory roughly six weeks after Election Day.

In that interim, “Markets initially reacted negatively to the absence of a clear winner. London’s FTSE surged on news that … Bush had won but gave up the gains on news of the planned recount,” McLoughlin notes. The S&P 500 dropped roughly 6% in the two weeks following the election, Fortune calculated, while the Dow fell around 5% in the two weeks “as litigation threatened to prolong the uncertainty,” McLoughlin writes.

Litigation is a key concern for 2020, too: McLoughlin suggests that “this year’s election is likely to be the most litigated in history.” He writes that by some counts plaintiffs have “already filed 192 lawsuits in at least 41 states across the nation arising from changes to voting procedures in the wake of the pandemic,” plus others that predated the pandemic.

The good news is that the market volatility in such cases is generally short- lived, UBS notes. In fact, McLoughlin points out that subsequent research has shown the worst impact to markets comes within four trading days of an “uncertain election outcome.”

Current polls show presumptive Democratic nominee and former Vice President Joe Biden with an edge over the incumbent. Analysts at firms including JPMorgan Chase have suggested that investors shouldn’t be too concerned about a Biden presidency—and argue he may actually be good for stocks.

“It’s not the case that the minute there’s a changeover in the White House, everything on the campaign platform becomes policy,” Charles Schwab chief investment strategist Liz Ann Sonders recently told Fortune. “I do happen to think a Biden presidency isn’t this guaranteed disaster for the stock market.”

Yet with all the moving pieces, the headline for investors here is to be “prepared for volatility in the event of an inconclusive result,” says McLoughlin. That said, fleeing into “safe haven” assets like gold or treasuries may be premature. Adds McLoughlin: “Any initial volatility should dissipate over time.”

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