Financial markets seem to have entered a depressed state. Uncertainty is set to loom large over the next months or quarters: political, economic and epidemiological factors will interlock in a complex manner. Markets will have to keep several important balls in the air. The most eye-catching ball at the moment — besides the COVID-19 crisis – is the U.S. elections.
More and more polls are pointing towards a Blue Sweep, with the Democrats securing the House, the Senate and the White House. Yet, many Democrats are still reluctant to say out loud that they are confident of victory; the trauma of 2016 is still at the back of their minds.
Importantly, Donald TrumpDonald John TrumpStephen Miller: Trump to further crackdown on illegal immigration if he wins US records 97,000 new COVID-19 cases, shattering daily record Biden leads Trump by 8 points nationally: poll MORE still has some avenues to pursue to set himself up in the White House for another four years. FiveThirtyEight, for example, still gives the incumbent president a one-in-nine chance of a second term. However, the Trump election bus would then have to successfully navigate exactly the right path of swing states for him to be able to get off at 1600 Pennsylvania Avenue.
For Vice President Joe BidenJoe BidenBiden leads Trump by 8 points nationally: poll Ivanka Trump raises million in a week for father’s campaign On The Money: McConnell says Congress will take up stimulus package at start of 2021 | Lawmakers see better prospects for COVID deal after election MORE, on the other hand, there are many more roads that lead to the White House. For example, even a state that has consistently been voting for the Republican presidential candidate since 1980 is a toss-up now, i.e. Texas, with its 38 electoral votes. If Biden gains the swing states in which he is currently far ahead in the polls (Virginia, Colorado, Michigan, Nevada, New Mexico, New Hampshire), he would win 286 electoral votes and therefore the presidency, even without Pennsylvania, North Carolina and Florida. And even without Michigan, he would narrowly gain the required 270. In addition, he is also doing well in Arizona (11 electoral votes) and Wisconsin (10).
The House of Representatives seem to be less interesting during these elections, as it is almost guaranteed to remain in Democratic hands. The Senate, on the other hand, is the most unpredictable of the three. At this point, it is Republican red: 53 Republicans versus 47 Democrats (including two independents). Thirty-five out of 100 seats are at stake in these elections of which 23 are currently in the hands of the GOP. The Democrats will therefore have to win three or four seats to secure the Senate (three if Biden wins the presidential elections, otherwise four — because the vice president casts the decisive vote in the event of a tie). Ever since the COVID-19 crisis broke out, the Democrats’ chances of making the Senate change color have increased significantly. At this point, the Democrats have a slight advantage according to most polls and betting markets.
But even if the Democrats secure all three houses, it is not a given that they can pass anything they want, because of the filibuster which allows a minority in the Senate of at least 41 votes to stop a bill from becoming law (incidentally, the filibuster cannot be deployed in all areas).
The Democrats will not have a majority of 60 after the elections, so the Republicans will still have blocking power in the Senate. Unless the Democrats push for the elimination of the filibuster. The simplest route — changing Senate Rule 22 — is not an option, as this would require the approval of two-thirds of the Senators present and voting. However, there are other, more complicated paths — that have been trodden in recent history — which, eventually, after jumping through the hoop several times, lead to a simple majority being required to create a new precedent for the Senate, whereby the filibuster is abolished after all for certain matters.
It remains to be seen when the election results will be known, and whether they will be accepted by the losing party. At the time of writing, 73 million Americans have voted early. In many places, these votes cannot yet be counted — and there are states where there are concerns that it will take days if not weeks after election day before the results are known.
In the worst-case scenario, Trump appears to be the winner on Nov. 3, with Biden overtaking him due to the previously cast votes. At this point, Trump is relentless in casting doubt over the reliability of early voting and postal voting, and he will only add fuel to the flames in a scenario in which he appears to have won on election day, but fears that he could still be defeated by said early votes. A substantial proportion of his support base mistrusts the elections and these supporters are even willing to resort to violence (this also applies to a considerable minority in the Democratic camp for that matter).
In short, the elections could form the prelude to weeks and possibly months of a political crisis in Washington, at a time when the country desperately requires guidance and clarity from the capital to be able to put up a fight against the COVID-19 crisis.
Andy Langenkamp is a senior strategic analyst at ECR Research and political commentator, who specializes in assessing the repercussions for the financial markets of economic and geopolitical events.