Election 2020: Coming Soon
(Disclaimer: We remain political agnostic when researching markets and when making investment decisions. No part of this is meant to be an endorsement of any candidate or political party. We also corrected an earlier version regarding the Biden/TX victory scenario.)
After reviewing early voting data from TargetSmart, it looks as though Biden may win the electoral college by less than 10 electoral college votes. Folks have entertained the notion that Biden could win Texas. If he were to pull this off, Trump couldn’t win even if he takes all the Arizona, Georgia, Florida, Ohio, Iowa, Michigan, North Carolina, Pennsylvania, and Wisconsin, but we see this scenario being in the low-probability camp. We will only know over the next few weeks. At this point what we know and what we anticipate, is that this election will likely be decided by single digit electoral votes, and it may take a while to know if we will have a 46th President or not.
That brings us to our first point: we do not expect to know who the President is on election night. Based on the various laws and procedures at the state level, more specifically battleground states, it may be a few weeks before all votes are properly counted. The US has already seen record turnout for mail-in voting as COVID continues to ravage normal life across the country, so we do anticipate further volatility in the markets, as we have already seen the past few weeks.
Which takes us to our next talking point: the markets have quite accurately predicted past Presidents. In 26 out of 28 instance (92.85%) where markets were negative from July through October, the current sitting President was elected out of office. This would then mean markets have being pricing in a Biden Presidency. Reasons we believe this may be possible are uncertainty around Biden’s tax plan which would raise corporate tax rates, and the market may very well be pricing this in. On the other hand, COVID-19 new cases across the US are over 80,000 per day, parts of Europe are back in lockdown and this may very well be the market responding to that. Regardless, this will not be a year many soon forget.
Regardless what happens on election night and the weeks to soon follow, the “Safe Harbor” Deadline falls on December 8th where a decision must be made by the states to select electors with Congressional Approval, as roughly a week later the Electoral College must cast their votes. Meaning in a near worst-case scenario we would know by December 8th. We thus expect the tighter the election, and the longer it takes, the higher the volatility. We also remind you to remain level headed and not make any changes to investment strategies unless your personal situation changes. Don’t trade the election.