Goldman Sachs has created a model for potential outcomes of the U.S. elections, analyzing the reaction of the S&P 500 index in each scenario.

It highlighted four main scenarios that combine the possibility of former President Donald Trump or Vice President Kamala Harris winning, along with either of them controlling Congress, as reported by CNBC and reviewed by Al Arabiya Business.

Concerning the markets, Goldman Sachs expects significant volatility, forecasting that the S&P 500 index will move by 1.91% until the close on Wednesday. With the uncertainty clearing after the elections, it points to the likelihood of market optimism and an increase in indices.

Expected Scenarios:

1. Trump wins and Republicans sweep
• Probability: 25%
• Impact on the S&P 500: Increase by 3%
• This outcome will boost financial stock performance, with regional banks rising by 3%. It is also expected that domestic cyclical stocks will outperform global firms.
2. Trump wins with a divided government
• Probability: 30%
• Impact on the S&P 500: Increase by 1.5%
• Despite the division, the index is expected to rise due to dissipating election risks and declining bond yields. However, market gains may be short-term with tariffs remaining and regulatory constraints lifted.
3. Harris wins and Democrats sweep
• Probability: 5%
• Impact on the S&P 500: Decrease by 3%
• This least likely scenario could lead to a decline in the index due to fears of corporate tax increases. Despite the negative risks, a drop in interest rates and a weak dollar may mitigate some of these effects.
4. Harris wins with a divided government
• Probability: 40%
• Impact on the S&P 500: Decrease by 1.5%
• This scenario is considered the most probable. Investors are expected to step in to buy stocks on the dip. Growth stocks and the Nasdaq index are likely to outperform, with a potential rise in renewable energy stocks by 6.8% and benefits for Chinese and global exporters and defensive stocks.