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.
Amid everything that is going on in the United States right now—the ongoing coronavirus pandemic, double-digit unemployment, protests and activism around social justice—we are now less than four months out from the 2020 election.
This year’s election is shaping up to be one of the most unusual elections in modern history. The coronavirus is likely to make the very act of voting significantly different than in previous years, with a much heavier reliance on voting by mail than ever before. That has potentially profound implications for campaigning, polling, turnout and ballot counting.
That’s why, as we did in 2016, Schwab will be providing regular perspective between now and the end of the year on the election and its impact on the markets and individual investors.
Here’s what we’re keeping an eye on in the weeks ahead:
The battle for the Senate will be key for 2021 policy agenda
While the presidential race will undoubtedly dominate the headlines in the months ahead, the part of the election that may be most important for the markets is the outcome in the battle for the Senate majority.
Republicans currently hold a 53-47 majority. But there are 23 Republican-held seats up for election in November and just 12 Democrat-held seats. While this is an advantage for Democrats, 18 of the 23 Republican seats are in states that President Donald Trump won by 10 or more points in 2016—in other words, states that tend to lean red.
That leaves a narrow path for Democrats to capture the majority, a path that runs through highly competitive seats in Arizona, Colorado, Georgia, Iowa, Maine, Montana and North Carolina. Republicans are favored to flip a seat currently held by a Democrat in Alabama, and a Democrat-held seat in Michigan may also be competitive. Democrats must net at least three seats to secure the majority if former Vice President Joe Biden wins the White House (as the vice president would break a 50-50 tie in the Senate) or four seats if President Trump is re-elected.
Why does this matter? Democrats are favored to retain their majority in the House of Representatives. If Republicans can maintain the majority in the Senate, we would have two more years of a split Congress, which has been the situation since the 2018 midterms. A split Congress means that neither party can push forward with an aggressive policy agenda of their own.
But if one party can sweep the White House and both chambers of Congress, that means the winning party will have a much easier time turning elements of its policy agenda into law—with potentially significant ramifications for taxes, retirement savings policy, federal spending priorities, regulatory policy and more. The markets will be keenly interested in the make-up of Congress in 2021.
The presidential race will be a marathon
President Trump and former Vice President Biden are set to face off in November. Key things we’ll be watching this summer:
Polls: National polls of the head-to-head race appear virtually every day. According to RealClearPolitics, the last time a major poll showed President Trump ahead was mid-February. Over the past two months, polls have shown Biden’s lead ranging from as little as 1 point to as many as 14 points. The average margin is about 8 points.
But that doesn’t mean the race is over by a long shot. Four months is an eternity in politics, and there will be countless developments in the race in that period that could change the equation.
Moreover, it’s important to keep in mind that while national polls can provide a sense of overall momentum for a candidate, we do not elect our president by popular vote. We elect our president through the Electoral College. Getting a sense of where the candidates stand in the key battleground states is what matters, and polling has been inconsistent in those states.
The Cook Political Report, a nonpartisan newsletter that tracks and analyzes elections, currently rates five states, with 86 electoral votes, as toss-ups: Arizona, Florida, North Carolina, Pennsylvania and Wisconsin. Another seven states, with 108 electoral votes, are ranked as “leaning” to one party or the other, meaning a narrow advantage. Those are the states that ultimately will determine who wins the White House in November. But polling in the battleground states has not been robust yet, and is unlikely to be so until the fall.
Finally, a word of caution about polls. As we saw in 2016, polls can be an imperfect measure of the actual outcome of an election. It has become more difficult to reach voters than it used to be, and many voters won’t answer calls from numbers they don’t recognize. Also, voter engagement at this juncture can be spotty—not all voters have really tuned into the election yet. I think polls taken after Labor Day are more useful than polls taken during the summer.
Vice presidential selection: A key moment this summer for Biden’s campaign will be the announcement of his running mate, which is expected by Aug. 1. Biden months ago pledged to select a woman and the pressure to select a Black woman has increased significantly in the wake of the social justice movement that has gained momentum in recent weeks. Biden’s former primary opponent, Senator Kamala Harris (D-Calif.) is considered a front runner, along with Rep. Val Demings (D-Fla.), Atlanta Mayor Keisha Lance Bottoms and New Mexico Governor Michelle Lujan Grisham, who is Latina. Biden’s campaign hopes to grab the national spotlight for a few days with a dramatic announcement.
Conventions: Both parties will hold their national conventions in late August. Democrats, whose convention was originally scheduled for mid-July, will convene in Milwaukee, Wis., Aug. 17-20, though it is widely speculated that most, if not all, of the convention activities will be virtual due to the ongoing pandemic.
Republicans had been scheduled to gather in Charlotte, N.C., Aug. 24-27, but they have moved the main speeches of the convention to Jacksonville, Fla., after the governor in North Carolina was unable to promise that the party would be able to put nearly 20,000 people in an arena with no social distancing and no mask-wearing requirement.
In recent history, the conventions have done little to move the race dramatically in one direction or the other. But with the uncertainty over how the conventions will operate and what they will look like in August, there may be more interest in the conventions this year than in recent presidential cycles.
Voting itself will be different
Finally, the pandemic has led to profound changes to the act of voting itself. We’ve seen this play out in primaries around the nation. While some states have seen relatively smooth elections, other states have seen their primaries plagued by long lines of voters, a lack of poll workers, problems with absentee ballots, faulty voting machines and profoundly slowed ballot counting. Four key issues to watch:
1. There is an enormous need for voter education about voting by mail—and not much time to do it. There are five states that have been using voting-by-mail for years: Colorado, Hawaii, Oregon, Utah and Washington. There are now 29 other states that have no-excuse absentee balloting, meaning any voter can vote absentee without having to be sick or out of town. California recently became the first state since the pandemic began to guarantee that it will mail every registered voter a ballot this fall. Other states are considering a similar approach. As a result, tens of millions of voters who usually vote in person are expected to vote by mail. However, the rules about how to obtain a ballot, how to fill out a ballot and when and how it needs to be returned differ from state to state. A massive voter education effort will need to be undertaken almost immediately to make sure voters understand those rules. And polls will remain open for in-person voting in most states, which creates its own set of issues around ensuring the safety of voters and poll workers.
2. Turnout will be hard to predict and could vary from jurisdiction to jurisdiction. Several states switched on short notice to an all-mail primary election after the pandemic shut down much of the country in March. The results were mixed—some states and localities saw significant increases in voter participation due to the ease of voting by mail; others saw lower-than-expected turnout due to problems with getting ballots to voters and/or voter confusion about the new process. This uncertainty will make it hard for pollsters to determine exactly who will vote in the fall.
3. We may not know who won for days after the election. Counting mail-in ballots is a much more time-consuming process, since it requires opening potentially tens of millions of envelopes and inserting the ballots into machines to record the votes. Several states have already been setting expectations that they could take a week or more to count all the ballots. The quadrennial tradition of television networks racing each other to make “the call” on election night may well be a thing of the past.
4. Legal challenges loom. President Trump has made no secret of the fact that he has concerns about potential fraud with voting by mail, and Republicans have amassed a war chest to fund legal challenges if needed. The prospects for a protracted legal fight over the election outcome are another concern for the markets in the fourth quarter of 2020.
What should investors do?
For now, the election remains four months off, and there currently are much more pressing health, economic and social issues on the front burner. The market tends to be forward-looking, and generally the shifting odds of various policy changes are continually reflected in stock prices. That’s one reason we don’t advise trying to “time the market” or trade around a particular election outcome.
Even if political uncertainty leads to volatility in the stock market, it can be helpful to keep an eye on the longer term. If your portfolio is diversified and geared toward your goals, it should be well-placed to weather market volatility. Elections may be cyclical, but they shouldn’t dictate your investment decisions.
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