We should know by this evening who our next president will be. But “should” is the operative word.

And the stock market’s reaction to the election will depend on a couple of factors:

  • How close the tallies are in Pennsylvania, Florida, and a handful of other swing states.
  • How long it takes to count the mail-in ballots (complete with legal challenges).

It could be days or weeks until we have a final result.

And the longer we go without knowing, the bigger the possibility for unrest and stock market turbulence.

Today, let’s go through a few election scenarios and make an action plan.

I really hope that all of this is much ado about nothing. The optimist in me expects both sides to respect the vote and nothing out of the ordinary happens in the coming days. But we’d be fools not to at least have a few contingency plans in place.

The Stock Market’s Reaction to the Election

Scenario 1: Donald Trump is declared winner on election night, and Joe Biden concedes.

This is a polarizing election, and millions of Americans will be upset by this outcome. But this is a continuation of the status quo.

In this scenario, the tax and regulatory regime remains unchanged.

This is a benign scenario for the stock market. Pre-pandemic, Wall Street seemed to react well to Trump policies, and banking, energy and social media stocks would likely enjoy a bounce. But this isn’t a high-drama scenario by any stretch.

Donald Trump Joe Biden Ukraine wealth tax stock market reaction to electionScenario 2: Biden is declared winner on election night, and Trump concedes.

Likewise, there will be millions of unhappy voters in this scenario. But it’s not much of an event.

Wall Street has been pricing in a Biden win for months, so if he wins it’s hard to see much of a market impact. Green energy stocks, marijuana stocks and pockets of the healthcare sector may have a modest bump, but that’s about it. Keep calm and carry on.

Scenario 3: Trump is declared winner on election night, but Biden does not concede.

I don’t think this is likely. Biden has indicated he will respect the results. But stranger things have happened.

We might see some market unrest for a couple of days, but I don’t see this being a major event. President Trump is already in the White House, so he doesn’t necessarily need a Biden concession to carry on business as usual.

Scenario 4: Biden is declared winner on election night, and Trump does not concede.

Here’s where the stock market’s reaction to the election starts to get weird.

President Trump has not committed to respecting the results of the election and has made it clear he is highly skeptical of mail-in ballots. We don’t need to debate whether mail-in ballots are fraud-proof. That’s not relevant here. What matters is whether or not he accepts the votes as counted.

The market impact will probably depend on how big the margin of victory was.

If Biden wins in a landslide, the market will likely shrug off Trump’s comments as blowing off steam. Plans for the transition will be made, even if Trump grumbles about it. It could get tense for a few days or maybe even a few weeks. But there is likely no tradable move here.

Scenario 5: There is no clear winner on election night, and results in at least one key state are compromised.

Oh boy. This is where we drift into nightmare territory.

Imagine it’s razor-thin in Pennsylvania, Florida or another major swing state. And imagine that one or either side demands recounts and this gets dragged out in court.

Or, in perhaps the worst-case scenario of all, let’s say tempers flare and armed groups from either side (or both sides) disrupt the vote counting at gunpoint and the state in question is unable to certify its votes.

The election then has to be settled by the House of Representatives, which could result in weeks or months of protests, widespread belief in a rigged election and paralyzing instability.

All of this would have sounded crazy in any other election — but not 2020.

If there is no clear winner and it looks like the worst-case scenarios are going to unfold, you should consider lightening your stock exposure. The stock market’s reaction to the election scenario above may take the form of a massive sell-off. If you haven’t already, adding a little gold or bitcoin as a hedge isn’t a bad idea either.

I’m an optimist, and I don’t really expect this to get “too weird” this evening. But if it does, we want to be prepared for it.

Money & Markets contributor Charles Sizemore specializes in income and retirement topics. Charles is a regular on The Bull & The Bear podcast. He is also a frequent guest on CNBC, Bloomberg and Fox Business.

Follow Charles on Twitter @CharlesSizemore.