This Tuesday's U.S. election is bound to be dazzling, and investors need some patience and a plan to find direction amid the noise, rather than getting lost in it.On Monday, November 4th, Michael Zezas, the head of fixed income research at Morgan Stanley, published an article stating that in the face of this election, the main goal for investors should be to enhance their understanding of the current market conditions and avoid being overly confident about the election results and their related market impacts.To this end, Morgan Stanley proposed three strategies to help investors adjust their expectations:<h2>Patiently Wait for Election Results</h2>In recent weeks, the market's expectations for a Republican victory in the White House have warmed up, and Morgan Stanley stated, &#34;This is certainly possible, but we believe it is not the most likely outcome.&#34; Currently, both candidates do not have a sufficient lead in many states, and considering the potential biases in polls, it is impossible to determine the election outcome at this time.Moreover, Morgan Stanley believes that the lengthy and noisy vote counting process seen in 2020 may be repeated.Although mail-in voting (VBM) has decreased compared to four years ago, it remains high relative to historical levels, which may delay the counting process. In key swing states, the results of mail-in voting may slowly erase the seemingly solid position of the currently leading candidate.Therefore, Morgan Stanley believes that investors should carefully observe the results and gradually adjust their expectations based on continuously updated information, rather than rushing to conclusions.<h2>Be Skeptical of Popular Opinions</h2>Many people can guess the election results, but few can accurately guess the reasons behind them.Morgan Stanley stated that understanding which signals can predict election outcomes requires comparing voter lists with pre-election polls, which typically necessitates months of post-event data collection and analysis.As a result, Morgan Stanley does not place much importance on poll results and does not agree with the view that &#34;polls systematically favor the Democrats and will again underestimate Trump's support,&#34; as polling errors are often symmetrical, and in recent elections, polls have also underestimated Democratic support.Morgan Stanley stated that the current polls and early voting data are not reliable enough, and &#34;it is unwise to distinguish them from the noise.&#34;<h2>Do Not Overinterpret Short-Term Market Volatility</h2>Morgan Stanley stated, do not overinterpret short-term market volatility, but rather compare current asset prices with potential policy directions—short-term market reactions post-election are often chaotic, but the ensuing public policies may drive lasting trends.For example, the market has long believed that a Republican victory would impose import tariffs on Mexico, which would pressure the Mexican peso. The Mexican peso has significantly depreciated in recent months, consistent with market expectations. More importantly, due to risks related to global trade policies (tariffs, negotiations on the USMCA, etc.) and uncertainties in local policies, the outlook for the Mexican peso remains bearish in the medium term.According to Morgan Stanley analyst Matthew Hornbach, U.S. Treasuries are experiencing a similar situation. After the Republican victory in 2016, U.S. Treasury yields rose sharply, likely because the market expected tax cuts that would drive economic growth and expand the fiscal deficit. The Republican Party has also put forth a similar policy agenda in this election, therefore, if the Republicans win the White House and the House of Representatives, it may push U.S. Treasury long-term yields higher.**However, Morgan Stanley also pointed out that the likelihood of U.S. Treasury yields experiencing a short-term reaction similar to that of 2016 is relatively low, as Trump's victory would not come as a surprise to the market, and investors' expectations have already been built on the market reactions following 2016. Additionally, the stance of global monetary policy is significantly different from before.In terms of stocks, sectors recently considered to benefit from Republican policies (such as finance and industrials) have performed well, while some stocks significantly related to tariff risks have performed poorly. Morgan Stanley stated, if the Democrats win, these recent market fluctuations may reverse, but this should not be seen as a signal for long-term macro expectations.

On the eve of the U.S. election, Morgan Stanley provides a guide to watching and avoiding pitfalls

- The upcoming U.S. election is creating uncertainty, and investors should remain patient and informed rather than overly confident about outcomes.  
- Morgan Stanley suggests three strategies: wait for election results, be skeptical of popular predictions, and avoid overinterpreting short-term market fluctuations.  
- They emphasize that current polling data is unreliable and that market reactions post-election may be chaotic, but long-term trends will be influenced by public policy decisions.

Morgan Stanley: Misconceptions about "Election Trading" that Investors Should Avoid