Decision 2020: No Winner Yet

With key swing states still counting mail-in ballots, the uncertainty that has dominated the election cycle continues.

Wednesday, November 4, 2020 | 11:00 am ET

Election Day may be over, but Americans do not yet know who will become the next president of the United States.

The latest results show that neither President Donald Trump nor Democratic candidate Joe Biden have secured the required 270 Electoral College votes yet, with multiple paths to victory still possible for either candidate.

The chances of not knowing the victor on Nov. 3 had grown over the last few weeks, due in part to the increased reliance on mail-in voting amid the pandemic. It’s estimated that 65 million people voted by mail-in ballot this year, twice as many as in 2016. With certain counties in key swing states not allowed to tally their mail-in votes until Election Day, it became more likely that the results would not be final for several days or weeks.

Market Reaction

Markets don’t like uncertainty. Although we don’t have clarity on who won the presidency yet, it appears the “blue wave” where the Democrats sweep the presidency and Congress is off the table. As such, U.S. equities appear to be taking the delay in stride, with the major U.S. indexes higher in mid-morning trading. The S&P 500 and Dow Jones Industrial Average are up around 3% and 2.5%, respectively, at the time of this writing. Meanwhile the Nasdaq Composite is up about 4%.

Equity markets are currently pricing in a diminished chance of a large fiscal package under a divided government and the lower likelihood of higher taxes, with the market focused on capital gains and corporate income taxes. In addition, the markets are once again favoring growth names that have led the rally during the recovery thus far and should continue to benefit from a divided government environment.

The initial move in the long end of the U.S. Treasury curve is lower, with a flattening of the yield curve given expectations for more limited fiscal stimulus. However, we expect Treasury rates will remain volatile with the 10-year Treasury note yield ranging between 50-95 basis points. Credit spreads widened initially but keeping corporate taxes low under a divided government would result in better cash flow, which should benefit credit quality and spreads. The U.S. dollar is little changed, as expectations remain unchanged that central bank policy, rather than political forces, will have the largest impact on exchange rates.

We expect the volatility will be temporary, but a lot will depend on how quickly votes are counted. Let’s take a look at where we stand, key dates to watch and why it is best to maintain a long-term perspective.

Where We Stand

As of 10:30 a.m. on Nov. 4, President Trump had won 213 votes while Democratic candidate Joe Biden had won 227 votes. 1

President Trump came out ahead in Texas, Florida and Ohio. While the polls suggested these states were close, the president won all of these states, just as he had done in 2016. But several key states – Pennsylvania, Michigan and Wisconsin, the so-called “blue wall” – are still counting ballots. Of the states too early to call – Arizona, Wisconsin, Michigan and Georgia – the last date that mail-in ballots are accepted is Election Day, suggesting that counting could be completed later today. The two states that allow ballots to be received later into this week are North Carolina and Pennsylvania, thus we may not know those results for several days. If Nevada’s six Electoral College votes end up the deciding factor, there could be an even longer wait: Nevada permits counting of ballots postmarked by Election Day and received no later than seven days later.

In addition to the presidential race being undecided, congressional races appear to be pointing to America’s preference for a divided government. Although betting odds were favoring the Democrats taking back the Senate, it appears that Republicans are holding on to their majority. Democrats needed to pick up three seats, even if Biden wins, but it looks likely they will pick up only one. It also appears as if Republicans are picking up four seats in the House of Representatives though Democrats would still hold the majority.

Dates to Keep in Mind

While the lack of clarity around the outcome can be frustrating for Americans, the democratic system ensures there is a transition of power by Inauguration Day. There are several dates to watch, as illustrated in Exhibit 1. The first is Dec. 8, or “safe harbor” day, which is the date states must finish counting ballots. Electors of the U.S. Electoral College will meet Dec. 14, 2020, in their respective state capitals to formally cast their votes. On Jan. 6, 2021, the Senate and House will convene to count the electoral votes.

Exhibit 1: Key Election Dates

The last time presidential election results were held up was in 2000, when votes were so tight in Florida that a recount was initiated by the state. Democratic presidential candidate Al Gore sued to force a recount in a few too-close-to-call counties. It took five weeks and a decision by the U.S. Supreme Court before George W. Bush was awarded Florida’s 25 electoral votes and became the 43rd president of the United States.

If neither candidate receives the required 270 Electoral College votes on Jan. 6, the 12th Amendment of the Constitution dictates what happens next. The president is decided by the House of the Representatives, with each state allotted one vote. The vice president is determined by a simple majority in the Senate.

Keep a Long-Term Perspective

While the uncertainty of not knowing the outcome can be unnerving, we encourage investors to avoid overreacting and stick to their long-term plan. Similar to what we saw following the unexpected win by President Donald Trump in 2016 or the Brexit vote, reacting to short-term geopolitical events can be detrimental to longer-term performance. We are well positioned for this period of uncertainty with a neutral weight to equities, an underweight to bonds and a small overweight to diversifiers to help buffer market swings.

It may take some time before we know the election outcome, and market dislocations may create better entry points for long-term investors. Know that we remain ready to make active investment and wealth planning decisions based on market fundamentals, our long-term outlook and wealth management expertise.

  • 1. New York Times as of 10:30 a.m. ET on Nov. 4, 2020.

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