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Why Senate Races May Be the Most Important Part of This Election

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RANDY FREDERICK: No matter how hard you try, it’s impossible to avoid the rhetoric these days coming from the two presidential candidates. Mike Townsend, Schwab’s vice president of legislative and regulatory affairs joins me for the August 2 Schwab Market Snapshot to discuss why the race to control the Senate is what’s really important this November. Welcome back, Mike.

MIKE TOWNSEND: Great to be with you, Randy.

RANDY: So, Mike, now that the conventions are over, I definitely want to get your take on the presidential race. But before we do that, you’ve been saying for quite some time that the most underreported part of this whole election is the control for the Senate. So why is the Senate race so important?

MIKE: Well, Republicans currently have a 54-46 majority in the Senate, but there are 24 Republicans up for re-election and just 10 Democrats. So Democrats really feel like they have a shot to take over the majority.

But here’s why this matters: No matter who wins control of the Senate it’s going to be a very, very narrow margin—51-49, 52-48, something like that—one way or the other. And that’s going to act as a huge break on the aspirations of whoever wins the White House.

In the modern Senate, you really need a 60-vote super majority to control the agenda, break a filibuster. So whoever wins the White House is going to have a really difficult time getting things through the Senate and passing the legislation that they want to. So investors need to remember that it’s going to be very, very difficult, no matter what the rhetoric is that you hear on the campaign trail.

RANDY: Yes, that makes sense. OK, so then let’s talk a little bit about the rhetoric. The convention speeches were certainly entertaining and really divisive. But the two parties also released their respective platforms. So what do the platforms tell us about how each party would govern? And is this something that investors need to pay attention to?

MIKE: Well, in a lot of ways, the platforms really underscore just how vast the differences are between the two parties on a host of issues. Whether it’s minimum wage, or taxes, or the Keystone Pipeline, or immigration—you just see a huge gulf between the two parties.

There were some interesting similarities in the platforms, and one that really struck me is that both parties are talking about reinstating the Glass-Steagall Act—which is the Depression era law that separated banking activities from securities activities. It was repealed in the late ’90s, but there’s been interest in restoring it ever since the financial crisis.

But even that underscores just how difficult it is to implement things that are in the platform. There really isn’t much energy in Congress to reinstate Glass-Steagall. It hasn’t even gotten a hearing, let alone a vote.

So I think that illustrates that the platforms are really just kind of a wish list of the party, and the difficulty that they are going to have implementing those things is really important. So investors don’t need to pay that much attention to what’s in the platform because it’s going to be so hard to actually come to reality.

RANDY: Yes, that makes sense. You know, something that I found just incredibly interesting is the fact that both presidential candidates have such unusually low favorability ratings. And, of course, that has sparked a lot of discussion about whether or not there might be an opening for a third-party challenge.

Now, we’ve seen third-party candidates garner some attention in the past, and this election certainly has broken the mold on many fronts already. So do you think a third-party candidate could have a role in the outcome of this election?

MIKE: Well, Randy, as you know, there have been instances in the not-too-distant past where folks like Ross Perot or Ron Paul or Ralph Nader have influenced the outcome. But you have to go back to 1968 and George Wallace to find the last time that a third-party candidate won an actual state in the presidential election. So it’s very, very difficult.

Now, the historic unpopularity of the candidates this year may leave a little sliver of opportunity. And the candidate that I’ve got my eye on is the Libertarian ticket. It’s run by Gary Johnson, former New Mexico governor, as the presidential candidate. William Weld, the former Massachusetts governor, is the vice presidential candidate. Well-known politicians. It’s kind of a middle-of-the-road approach.

In a CBS News poll right after the Democratic Convention, Johnson garnered about 10% of the vote. If he gets to 15%, that’s the threshold for participation in the fall debates. I think it’s a real longshot, but if he was to get to 15% and show up on the debate stage, that could really shake up the race.

RANDY: Yes, that would make things a lot more interesting. You know, Mike, if our clients aren’t already overwhelmed by this campaign, they certainly could be by November. But elections are important, so what else do our clients need to be paying attention to right now?

MIKE: Well, a couple things to watch in the weeks and months ahead. First, the debates are coming up. September 26, October 9 and October 19 are the presidential debates. October 4 is the vice presidential debate.

And though it sometimes seems like we’re overwhelmed with 24-hour coverage of this race, the reality is that a lot of voters haven’t really started to pay attention and won’t do so until the fall. So those debates will be very important.

But keep in mind as you’re watching the debates that there’s still that huge distance between the rhetoric that the presidential candidates will put out, the promises that they will make and the ability that they will actually have if elected, to push that through a narrowly divided Congress.

The second important thing that I would have people point at is the polling. And what I would not pay attention to too much is the national polls. You will read about polls every day—who’s winning the horse race—but remember that it’s not the national polls that elect our president. It’s the Electoral College—538 electoral votes are up for grabs. The states divide them up by population. You need 270 to win.

So the polls to pay attention to are those battleground states like Florida, Ohio, Pennsylvania, maybe even a state like Michigan which has been very Democratic. It’s voted for the Democratic presidential candidate in the last six presidential elections, but it’s a state that Donald Trump is targeting as a possibility to flip from blue to red. So watch those battleground states and pay less attention to what’s happening in the national polls.

RANDY: Yes, those are some very important points. Thanks, Mike.

Listen, if you have some questions about how these issues might impact your portfolio, please, we urge you to call and talk to a Schwab financial professional.

You can read more of Mike’s Washington Insights on Schwab.com. And, remember, you can follow me on Twitter @RandyAFrederick. We will be back again. Until next time, invest wisely. Own your tomorrow.

Important Disclosures

Please note that this content was created as of the specific date indicated and reflects the author’s views as of that date. It will be kept solely for historical purposes, and the author’s opinions may change, without notice, in reaction to shifting economic, business, and other conditions. Supporting documentation for any claims or statistical information is available upon request.

The election analysis provided by The Charles Schwab Corporation does not constitute and should not be interpreted as an endorsement of any candidate or political party.

Charles Schwab & Co. Inc. is a subsidiary of The Charles Schwab Corporation.

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