The Real Election Date Isn’t November 3rd
Monday Market Recap - November 2, 2020
Highlights
Europe announces new closures and lockdowns as cases continue to rise in France, England, and Spain.
U.S. equities posted its worst weekly loss since March 2020, with the S&P 500 index declining down 5.62%
The US Election is set to begin tomorrow November 3rd with a record 90 million votes already accounted for in early voting.
The Real Election Date
We have already seen a record number of early voting for this year’s election with about 90 million votes already cast. While we expect this to be a tight race, depending on a few key swing states, we may not officially have a winner declared at nights end on November 3rd. Several states won’t be counting any votes at all until election day, regardless of the amount of ballots they have currently received. The dynamic could be most intense in Pennsylvania, where results may not be certified for several days – raising the potential for disputes if the result is close. There may be no preliminary winner for several days – and no official winner for several weeks, based on Pennsylvania’s experience in the June primary, when counting took more than six days.
In the case of a contested election, here is how that process may look (see chart below):
After Nov. 3, states have until Dec. 8 to count ballots, conduct recounts and settle any disputes in accordance with the Electoral Count Act; which has not seriously been tested since the Bush v Gore 2000 election.
Each state’s electors meet in their respective capitols on Dec. 14 to cast their ballots. The newly elected Congress must validate the results in a joint session on Jan. 6.
If no candidate wins 270 electoral votes, the newly elected House of Representatives elects the president by simple majority. The Senate chooses the vice president.
If a president or vice president is not chosen by Jan. 20, the Presidential Succession Act states that the Speaker of the House would act as president until there is a president or vice president.
Source: BlackRock Investment Institute and AP News, “Vision 2020: What happens if the U.S. election is contested?” as of Oct. 16, 2020. Available at https://apnews.com/article/election-2020-inaugurations-archive- election-recounts-elections-fa1f88c9ff0681bd78b147137c09b3d9
Therefore, regardless of election day numbers, the official count will not be determined until December 8th, what I consider the “The Real Election Date”.
Now, according to Blackrock and 270towin election results likely support the following 3 scenarios (in order of likelihood) and its potential market impact:
A Democratic sweep could result in a new round of large-scale stimulus and spending boost on clean energy, transport and housing. It may also bring higher taxes for companies and the wealthy.
A Biden win with a Republican-controlled Senate would likely lead to much less fiscal stimulus, little public investment, no major tax changes and tech may face regulation and anti-trust measures.
A Trump re-election and a Democratic Congress may allow tech and companies with strong balance sheets to keep performing strongly while international markets would likely underperform (think Emerging Markets and Europe) as nationalist policies continue.
Sources: BlackRock Investment Institute, with data from 270towin.com, October 2020. Notes: The map shows how different states’ electoral votes are leaning in the U.S. presidential election based on aggregates of current state-wide polling as of Oct. 30. Maine and Nebraska have split votes. The underlying map can be seen at https://www.270towin.com/
With as much as 86 to 123 electoral college votes available as a toss-up in this year’s election, this year’s predictions will be anything but guaranteed. However, while the election may cause short term volatility, as discussed in our last letter, we will be prepared, we will stay the course, and we will adjust accordingly with data and research - not our politics.
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Sources: BlackRock Investment Institute, MSCI, Citigroup, with data from Refinitiv Datastream, October 2020. Notes: The chart shows quarterly returns for U.S. government bonds (Bloomberg Barclays U.S. Treasury Total Return), TIPS (Bloomberg Barclays U.S. Treasury inflation notes total return index) and equities (MSCI USA Total Return index) in U.S. dollar terms during upside inflation shocks and downside growth shocks. The periods for inflation and growth shocks are measured as those quarters during which Citi’s inflation and growth surprise indexes recorded a greater than 1 standard deviation relative to their history. Indexes are unmanaged and not subject to fees.