The election analysis provided by Charles Schwab & Co., Inc., does not constitute and should not be interpreted as an endorsement of any candidate or political party.
With the final debate between presidential candidates Hillary Clinton and Donald Trump on the books, voters now have less than three weeks to go until Election Day.
Clinton appears to be holding a solid lead in most national polls and, more importantly, state-by-state polling shows she continues to hold an advantage in the all-important Electoral College.
Post-debate polls won’t come out until early next week, but if Clinton remains ahead, that spells trouble for Trump. Historically, whichever candidate is ahead after the final debate has consistently gone on to win the presidency. It’s difficult to change the contours of the race in the final days because there are no more opportunities to appear before the kind of vast national audience that tunes in to the debates.
Here’s what we learned from the final debate, and what investors should pay attention to in the weeks ahead:
- Trump didn’t get the game-changing development he needed. Trailing in most polls, Trump needed either a decisive win or a major Clinton mistake to change the landscape for the final sprint to the finish line. But both candidates had strong performances at different parts of the debate.
Perhaps the debate’s most memorable moment came when Trump refused to say that he would accept the outcome of the election. That’s what drove the headlines the next day and dominated discussions on television, on radio and online. If that was the game-changer, it probably wasn’t the one Trump was hoping for.
- The debate was surprisingly substantive, and the discussion of budget deficits and the debt was an important one for investors. The candidates engaged in more direct discussions of policy differences than in the first two debates. There were substantive exchanges on several key issues for voters, including guns, abortion, immigration, trade, taxes and entitlements, among others.
Of particular note for investors was the discussion of the budget deficit and the national debt, issues that will be front and center in early 2017. The new president will have to present his or her budget to Congress within weeks of taking office. That plan will contain policy specifics, so investors will have a clearer sense of what issues are top priorities for the new president. There will also be an immediate opportunity to see whether the budget deficit will grow or shrink under that plan.
The national debt will also be a key issue in early 2017, because the debt ceiling, which is currently suspended, comes back in March. At that point the national debt should be at or very near $20 trillion, a number that few thought would ever be reached a decade ago.
Once the debt ceiling returns, the clock will start ticking toward a possible U.S. default on its debts, unless Congress acts to raise or suspend the debt limit.
The Treasury Department can employ its so-called “extraordinary measures” to buy Congress some additional time to make its decision, but lawmakers are likely to be faced with a hard deadline on raising the debt ceiling sometime around mid-year.
Uncertainty about whether and when Congress will act on the debt ceiling has caused significant market volatility in recent years. We could be in for a repeat of that volatility as the new Congress wrestles with whether to allow the national debt to continue to climb.
- Is control of the House of Representatives up for grabs? Two months ago, few analysts thought there was much chance that Democrats could overcome the 30-seat majority Republicans currently have in the House. But in the last few weeks, anxiety has increased among Republicans in Washington that if Hillary Clinton wins a big victory at the top of the ticket, that could have a significant impact on down-ballot races.
Some Republicans have begun openly encouraging voters to “ticket split,” which happens when voters cast a ballot for one party at the top of the ticket and the other party lower down the ballot, as a kind of check-and-balance system. But ticket-splitting has been steadily declining over the last four decades.
A Democratic takeover of the House remains a long shot, but it is more plausible now than it was a month or two ago. At best, Republicans are likely to lose a big chunk of their 30-seat majority, and holding on to their majority by single digits would not be a surprise.
- The Senate remains on track for a very narrow divide. The Republicans hold a 54-46 majority now, but they are defending 24 seats in November while Democrats are defending just 10. Control of the chamber is likely to come down to which party wins in five toss-up races: Florida, Nevada, New Hampshire, North Carolina and Pennsylvania.
As we have been saying for months, though, investors need to keep in mind that whichever party wins control of the Senate will do so by a very small margin, perhaps 52-48 or 53-47. That will be far short of the 60-vote supermajority needed to break a filibuster and control the agenda.
A narrowly divided Senate in 2017 will be a big impediment on the new president’s ability to push through his or her policy agenda. Consensus will be needed, but that will be a challenge in a Congress that is sure to be bitterly partisan no matter which party is in control.
- Infrastructure spending is one bright spot for potential bipartisanship. Though it received only passing mention in the final debate, both candidates have said that infrastructure spending will be a priority in their first year in office. It’s one of the few areas that could find some consensus in Congress.
Both parties believe that repairing the nation’s aging bridges, road, airports and ports should be a priority. Both also recognize the potential economic stimulus and job creation an infrastructure spending package could bring. If there is to be an issue for both parties to rally around in 2017 – a big “if” – infrastructure is the most likely candidate.
Schwab reminds you: Don’t forget to vote on November 8th!