The markets are eerily calm, across most asset classes. The stock markets are not moving much apart from the occasional pull backs and implied volatility remains stubbornly low. Bonds are consolidating and oil seems to pivot around the $50 per barrel mark.
All eyes are on the upcoming US election and polls are indicating a Clinton victory. However the danger is in a shock outcome. In its complacency the financial system is positioned for a major shock if the unexpected happens. If the polls are wrong or if something surprising changes the dynamics, the response in financial markets could be devastating to investors.
I believe the probability of Trump winning is low. Then again many thought Britain would vote to stay in the European Union. It is my view that the risks are asymmetrically skewed to the downside.
Common sense risk management would suggest scale back risks going into the final days. If there is a non-Trump victory, the market moves are likely to be small and investors will not have missed much of the upside. Consider the missed gains as a cheap option to protect the portfolio.