Decision 2020: Biden Declared President-Elect

Democratic candidate and former Vice President Joe Biden has secured the votes needed to win the White House, though legal challenges loom.

Monday, November 9, 2020 | 8:00 a.m. ET

The views in this article are based on current available election results. We will share any changes that may arise from pending state recounts and legal challenges.

Democratic candidate and former Vice President Joe Biden clinched Pennsylvania and later Nevada, reaching a total of 279 Electoral College votes to President Trump’s 214. The election resulted in record voter turnout, with Biden winning the popular vote with 75 million votes compared to President Donald Trump’s 71 million. Senator Kamala Harris also made history becoming the first woman – and woman of color – to be elected vice president. Of course, the results are not yet certified so Americans will have to wait several weeks until they are official.

The victory was declared four days after Election Day, capping an extended period of vote counting in a handful of key battleground states. This year’s election was highly unusual, as states were forced to process more than 65 million mail-in ballots – twice the number in 2016 – due to the ongoing pandemic. The rules for counting these ballots varied state to state; some such as Florida were able to start early, while others, such as Pennsylvania, could only start after the polls closed on Election Day.

President Trump’s campaign has filed lawsuits targeting the vote count in Georgia, Michigan and Pennsylvania, and plans to call for a recount in Wisconsin, where Biden won by a margin of 0.6%. A recount in Georgia is pending.

Makeup of Congress Hinges on Georgia

For now, Republicans appear to have a good chance of maintaining control of the Senate, although some states still have not been called and two are headed for runoffs. Currently, the number of Senate seats is tied at 48 each, with two Senate races in North Carolina and Alaska still pending but expected to be won by Republicans. This means control of the Senate is boiling down to Georgia, with the race dragging out until early January.

Under Georgia law, if no Senate candidate gets more than 50% of the vote, the two top vote getters, regardless of party, compete in a runoff to be held on Jan. 5. Georgia had two separate Senate races this year, thanks to a special election to replace the retired Sen. Johnny Isakson: Democrat Jon Ossoff is trying to unseat Republican Sen. David Perdue, and Democrat Raphael Warnock is facing off against Republican Sen. Kelly Loeffler. Both races, as of Sunday, looked to be headed for a runoff. With Biden winning the White House, a 50-50 margin in the Senate would hand Democrats the majority because Vice President Kamala Harris could break a tie.

In the House of Representatives, Republicans appear to have picked up four seats, though Democrats still hold the majority.

Market Reaction

Despite the delay around the presidential outcome, U.S. equities delivered their best week in months. The S&P 500 and Dow Jones Industrial Average were up 7.3% and 6.9%, respectively. Meanwhile, the Nasdaq Composite surged 9%, as technology names led the advance. Following Election Day, the market quickly priced in the most likely outcome of a divided government – a smaller fiscal package and a lower likelihood of higher taxes. This led to a reversion from the cyclical names that had been gaining traction over the last month on expectations of a large fiscal package, to the growth names that have led the advance since the market’s March lows.

The U.S. Treasury curve initially flattened, with longer-term rates moving lower given expectations for more limited fiscal stimulus. However, yields pushed higher on Friday following a better-than-expected U.S. jobs report, with the 10-year Treasury note yield ending the week at 0.81%. Credit spreads tightened given expectations that corporate taxes will remain low under a divided government.

What’s Next

With President Trump’s campaign taking legal action in several states, it’s not yet clear what might happen next. In states where his campaign has alleged fraud in the practices around vote counting, court decisions will determine the outcome. For vote recounts, there is a structured path. For example, in Wisconsin, where recounts are not mandated by the state but can be requested when the vote margin is 1% or less, Trump would have three days after the last county certifies its vote to submit a petition for a recount; this would typically happen by Nov. 20. The recount would have to be completed no later than 13 days after it was ordered.

It is possible that the Supreme Court may have to get involved. The last time this happened 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.

No matter what, the democratic system ensures there is a transition of power by Inauguration Day. There are several dates to watch. 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, 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.

The U.S. Under Biden

In the early days of Biden’s administration, the focus will likely be on addressing the pandemic and ensuring the U.S. economy can continue to recover despite showing some recent signs of moderation. In our view, a stimulus package is imminent but the size and timing will depend on the makeup of Congress. Should we end up having a divided Congress, the size of that fiscal package could be smaller than it might have been with Democrats controlling both chambers of Congress. It remains to be seen whether a fiscal relief package could happen during the November/December lame-duck session of Congress, or early in 2021, after the new Congress is seated. But Senate Majority Leader Mitch McConnell has indicated his willingness to consider a stimulus package during the lame-duck session.

Although Biden campaigned on rolling back parts of the Tax Cut and Jobs Act of 2017, a divided Congress means that taxes on individual, corporate and investment income appear unlikely to rise. Areas of more progressive policies in industries like health care and energy are likely off the table as well, but infrastructure could be an area of bipartisan compromise. Of course, that could change if the Senate runoff races in Georgia result in Democrats winning both and retaking the Senate. Since trade policy is controlled by the executive branch, Biden's support of free trade should help allay fears of more protectionist policies, helping to support global growth.

Today, we have positioned portfolios for a mid-cycle bull market of modest equity returns, lower-for-longer yields given the accommodative policies of global central banks, and a pickup in volatility. Yet, we constantly monitor for new information that may influence how we position investor portfolios moving forward.

Although we currently favor U.S. equities, expectations for more multilateral trade policies under a Biden administration could weaken the U.S. dollar and ease trade tensions with China. This result may cause us to invest more in non-U.S. equities, a move we began in August given the relative attractive valuations, weaker dollar and strength of the economic recovery outside the U.S. Within U.S. equities, our preference for large cap over small cap will likely persist as larger companies may fare better given their reliance on global demand and may benefit from a weakening dollar.

It is important to remember that policy shifts will be decided long after this week’s election results. When considering changes to our asset allocation recommendations, market fundamentals will be the most important factor. We believe our clients are well-positioned for this political and economic landscape and will continually evaluate policy impact on business, economic and capital market cycles.

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