November 4, 2020
U.S. Election – Counting Continues
Vote counting continues in several key swing states to determine who will serve as President of the United States for the next four years. In this note, we will recap what is known about the election results so far, outline likely next steps in the process, and discuss the immediate reaction in capital markets.
Race for the White House
Source: Bloomberg
As of this writing, 452 of 538 electoral votes have been called one way or the other, with neither candidate reaching the 270 needed to win. This morning, 86 electoral votes remain across seven states where standard vote counting procedures continue.
Source: Bloomberg and Author’s calculations
Taking a closer look at the undecided states we make a couple of observations. Based on current tallies, Trump is leading in Pennsylvania, Georgia, Michigan, North Carolina, and Alaska, while Joe Biden leads in Wisconsin and Nevada. If we award these electoral votes based on current tallies Trump would capture the 270 needed to win. That said, votes are still being counted in all of these states and importantly, mail-in ballots, which are expected to favor Biden, are among those last to be counted. A lot can happen and the stakes are high, but if Biden maintains leads in Wisconsin and Nevada and captures Georgia, Michigan, or Pennsylvania once all the votes are counted, he would have the 270 needed to win.
Race for the Senate
Source: Bloomberg
In this cycle, 12 Democratic-held seats and 23 Republican-held seats were up for election for a total of 35. As of this morning, 12 seats have been called in favor of Democrats including two (AZ and CO) captured from Republicans. Seventeen seats have been called in favor of Republicans including one (AL) captured from Democrats. In order to take control of the Senate, Democrats would need to flip a net of three Republican-held seats if Biden wins the White House or four if Trump wins. We await final Senate race results from Alaska, Georgia, Maine, Michigan and North Carolina all of which show republican leads at the moment. In the event of a split Senate, a special election for Georgia’s second seat scheduled for January would determine which party controls.
Race for the House of Representatives
Source: Bloomberg
Heading into the election, Democrats held 232 seats and Republicans held 197. While current tallies make the race for the House appear neck and neck, underlying dynamics suggest it would be unlikely for Republicans to flip enough seats to take back the majority once all the votes are counted.
What happens next?
We have now entered the interregnum – the 79-day period from Election Day to the inauguration. There are several key milestones during the interregnum. First, votes will continue to be counted. It should come as no surprise that some states do not yet have clear results. State-specific voting regulations and procedures were expected to cause delays particularly in those states outlined above. We expect data to continue trickling in in coming days, with a pretty clear picture of state-specific outcomes by the end of the week. We would typically expect a concession from one candidate or the other once the outcome is clear, marking the unofficial end of the race. Without a concession, or in the event of a contested outcome, we look to December 14 when electors assemble in state capitols to cast electoral votes determining the official outcome of the election. These votes would be formally counted in a joint meeting of the newly elected House and Senate on January 6 when the President-elect and Vice President-elect take the oath of office. The current presidential term ends at noon on inauguration day January 20.
Market reaction
We are getting some mixed signals from financial markets this morning. Bond yields are down suggesting a risk-off shift, while equities are indicating sharply higher suggesting the opposite. It occurs to us that while significant uncertainty surrounding the election remains, the odds of a unified democratic government have deteriorated – a dynamic that may influence short-term positioning for some investors.
Source: Bloomberg
Conclusion
The rest of 2020 could get pretty interesting, but what else is new? Regarding your investments, the short term can be exceedingly unpredictable, but don’t lose sight of the fact that your financial plan, and the investment portfolio supporting that plan, were developed with a long-term lens. We will continue to monitor election related developments in the days and weeks ahead. If you have any questions, please reach out to any member of our team.