Race for the Senate: The Key Battlegrounds

US Presidential Election

As this election cycle enters the final stretch, the battle for the upper chamber will become increasingly prominent. No matter who resides in the White House come 2021, the success or failure of their term will largely rest on the Senate’s shoulders.

Here, we will take each of the competitive races in turn, and seek to give an indication of what to expect on election night. As it stands, the Democrats are likely to retain 45 seats and Republicans 44, with 11 key races deciding the balance of power.

Georgia 1: Perdue vs Ossoff

  • The incumbent Republican is currently 2.3% ahead, according to the RealClearPolitics polling averages
  • FiveThirtyEight gives Perdue a 72% chance of re-election
  • Ossoff set a Georgia record for the month of August, raising $4.7 million
  • Overall, whilst it is likely to be far closer than FiveThirtyEight appears to suggest, given a recent tightening of poll numbers, the Republicans have the edge in this race

Iowa: Ernst vs Greenfield

  • The incumbent Republican is down by 4.8%, according the RealClearPolitics polling averages
  • FiveThirtyEight gives the Democratic challenger a 53% chance of victory
  • Thursday night’s debate could well boost Greenfield’s chances of success after her opponent was unable to recall the break-even price of soybeans – a cardinal sin in Iowa politics!
  • Overall, whilst this race may be one of the closest in the cycle, the momentum is against Ernst and the Republicans.
  • The Democrats will re-take the Senate seat they lost in 2016

Maine: Collins vs Gideon

  • The Democratic challenger in this race is up by 4.2%, according to the RealClearPolitics polling averages
  • FiveThirtyEight gives Collins’ a 37% chance of a fifth term
  • This race has turned into a referendum on Senator Collins, with her record under scrutiny from the very beginning
  • The incumbent’s troubles have been exacerbated by the fundraising juggernaut established by her Democratic challenger, who has outraised Collins by $7 million this election cycle
  • Undoubtedly another close race. However, Collins has failed to shed the negativity surrounding her actions during the Kavanaugh hearings and will be punished for it on November 3rd. A second Democratic pick up

Michigan: James vs Peters

  • The Democratic incumbent in this race is up by 5.1%, according to the RealClearPolitics polling averages
  • FiveThirtyEight gives Peters a 79% chance of re-election
  • The Republican challenger here is likely to outperform President Trump on November 3rd, and has managed to maintain fundraising parity with his opponent thus far
  • Despite this, the Democrats are highly favoured to retain this seat, given the President’s poor polling at the top of the ballot

North Carolina: Tillis vs Cunningham

  • The Republican incumbent is down by 3.9% here, according to the RealClearPolitics polling averages
  • FiveThirtyEight gives the Democrats a 65% chance of picking up this seat
  • In a bizarre turn of events this month, the Democratic challenger was embroiled in a sexting scandal, and subsequently saw his poll numbers increase healthily – yes really
  • Given both the position and direction of recent polling, the Democrats are the likely winners here. Tillis could still stage a comeback though, if he were to conjure up a sex scandal before November 3rd and benefit from the same strange phenomenon that has helped his opponent…!

South Carolina: Graham vs Harrison

  • Polling in this race has been very erratic, and so a polling average is difficult to produce. The most recent polling available has Graham up by 6%, although this had been preceded by a succession of polls which had the race tied
  • FiveThirtyEight gives the incumbent Republican a 77% chance of victory
  • This race has seen gaffe after gaffe on the Republican side, with Senator Graham referring to ‘the good old days of segregation’ in a recent Senate hearing and breaking federal law by soliciting donations from Capitol Hill
    Despite Graham trying his very best to lose this race, the pro-Republican demographics in the state will see him crawl over the line

Arizona: McSally vs Kelly

  • The Democratic challenger is up by 8% in this race, according to the RealClearPolitics polling averages
  • FiveThirtyEight gives Kelly an 80% chance of victory
  • This race is especially important, given that it is a special election. This means that the victor will not have to wait until January to be sworn in and could change the balance of power in the Senate within weeks of election day.
  • The Democrats have had a sizeable lead in this race from the beginning, despite McSally’s quasi-incumbency – another Democratic pick up

Colorado: Gardner vs Hickenlooper

  • Polling in this state has been infrequent, but has shown consistently large leads for the Democratic challenger
  • FiveThirtyEight gives the incumbent Republican a 21% chance of retaining his seat
  • The Cook Political Report recently shifted this race from ‘toss up’ to ‘lean democratic’
  • Everything appears to point towards another Democratic pick up here

Montana: Daines vs Bullock

  • The Republican incumbent is up by 3.3% here, according to the RealClearPolitics polling averages
  • FiveThirtyEight gives him a 68% chance of retaining this seat
  • This race would usually not be competitive, but the Democratic challenger is a former two-term Governor of the state. Having won state-wide elections twice before, this is now on the Democratic hit list, albeit on the more ambitious end.
  • This is another race whereby the in-built Republican advantage is likely to prove too much, especially given that we are in a Presidential election year. A closer-than-normal election, but Republicans will retain.

Alabama: Tuberville vs Jones

  • The Republican challenger here is up by double digits in many polls
  • FiveThirtyEight gives Tuberville a 75% chance of victory
  • The fact that the Democrats won this seat in the first place was due to allegations of sexual assault made against the Republican nominee. Even so, Jones only won that election by 1.5%.
  • Having taken the bold strategy of nominating a candidate not accused of sexual assault this time around, the Republicans will be rewarded at the ballot box – a Republican pick up.

Georgia 2: Loeffler vs Collins vs Warnock vs Liberman

  • This race is complicated by the fact that it is a special election, and that no candidate is likely to receive 50% of votes cast. This means that a run-off is highly likely, which would take place on January 5th.
  • FiveThirtyEight gives the Republican candidate (whoever that may be) a 51% chance of victory in January
  • This race is highly unpredictable, given that four candidates are currently in the running. If forced to make a call, Republicans just about have the edge in this race. The special election will take place as a standalone, without the pulling power of a Presidential race. Turnout will fall and the Republicans will squeak by. However, if Trump is defeated in November, and does a lot of controversial things on his way out, it could easily swing this race for the Democrats.

Overall: Democrats 51 Seats Republicans 49 Seats

Blonde Money: US Presidential Election – It’ll be Alright on the Night

US Presidential Election

Many expect November’s election results to be chaotic, with predictions that coronavirus and political polarisation will result in recount requests and mail-in voting delaying results by weeks.

In reality, the logistics and legislation that underpin the voting process mean a delayed result is very unlikely.

From an electoral perspective, the 2020 election may even deliver quicker results than normal. Most swing states start counting mail ballots before polls close on election day.

Florida, for example, starts as early as October 12th. This year, as many as half of voters will vote early or by mail, reducing the amount of ballots that need to be tallied after polls close and effectively giving vote counters a head start.

But what about late ballots that the United States Postal Service itself warned might not make it in time?

BlondeMoney has ranked all the states by how winnable they are for President Trump, and of the 14 key swing states, half will only count the ballots if they’re received by election day.

That means that it doesn’t really matter if people leave it late – their vote won’t be included. If anything, these dire warnings will prompt people to return their ballots earlier, which once again will help ensure they’re processed sooner.

But what if the very last minute voters shift the dial? After all, on election day four years ago, around 13% of voters were said to be undecided. It was this pool of untapped voters that Trump managed to swing in his direction in a late surge, helping to confound the polls.

But this time around, there are two candidates that everyone already knows.

Biden’s experience and Trump’s conspicuous presidency mean most of the electorate have already made up their minds.

Currently, just 7% of voters are said to be undecided. Typically this falls to 4-5% by election day. Given current poll margins that put Biden ahead by 4 to 7 percentage points in the rust belt swing states, that would mean Trump would need all those voters to break for him, plus send in their ballots on election day itself, for any delayed ballots to move the dial.

Logistically, there’s similarly little reason to anticipate late results. Every state has historic experience with mail ballots, and the primaries in early 2020 provided a useful dress rehearsal. Rather than learn from scratch, therefore, states simply need to scale up their mail counting apparatus.

While social distancing means vote counters will likely be fewer on election day, possibly slowing result delivery, the fact that many mail votes will have already been counted offsets this to a helpful extent.

Finally, there is the threat of a delay due to contested ballots. This is unlikely because of the rigid recount laws in the swing states. In the three swing states with those all-important big electoral college votes, recounts would be tough.

In Wisconsin, a 1% margin is needed before candidates can request recounts.

In Florida and Pennsylvania the margin for an automatic recount is just 0.5%. These wafer-thin margins look unlikely given current polling. In any case, contesting the result has its political limits.

A sore loser candidate might want to keep recounts going, but if there’s a clear winner across the country, the political pressure will limit their ability to do so.

Overall, a significant delay to results beyond November 3rd is very unlikely. Early counting of mail ballots will likely accelerate, not hinder, electoral delivery, while this election’s wide margins mean mail votes are unlikely to seriously influence the results.

Coupled with each state’s logistical preparedness for mailed ballots and the bedrock of stringent recount law, the possibility of delay seems more and more remote.

Ultimately, for mail votes to delay results, significantly closer polls are needed.

Election update: Blue-nami flips to consensus bull catalyst

US Presidential Election

US presidential election update: Bank of America strategists say the Blue-nami outcome, which had been initially considered negative for equities, is being priced in better by the market and may now be a positive. “Blue wave election outcome (Democrats winning) has curiously flipped from consensus bear to bull catalyst in recent months,” they say. 

The S&P 500 corrected through September, flushing out some of the weaker hands and allowing longs to cautiously rebuild as the market traded the 3200-3400 range. The recent upside break came despite negotiations around a broad $2.2tn stimulus package all but breaking down entirely. In this period polls have reverted to showing a greater likelihood of a Biden win and odds shortening on a Democrat clean sweep. 

As noted in our election playbookthere are lots of reasons why the market could really like a Biden presidency, even if tax and regulation could be a problem.  

Clean sweep

Ultimately though it may matter less in the long run who enters the White House than whether the Senate turns blue or stays red. Unusually, the economy may benefit more from unity than the current polarisation – the normal idea that gridlock in Washington is good, because it stops politicians from interfering with the free market, doesn’t quite wash this time. 

The pandemic has upended the norms and the economic backdrop to this election. Cohesion in Washington would likely deliver the kind of fiscal stimulus required to flood the economy with money and get the wheels turning again. 

A Democrat clean sweep would probably result in a far larger package of support and therefore deliver a much stronger stimulus than we would anticipate if Trump wins and the Senate remains in Republican hands whilst the House of Representatives stays blue. Biden’s plans to stimulate the economy involve enormous spending pledges – and to be fair, an increase in the budget deficit is exactly what the economy needs right now. The Federal Reserve has already said it will not get in the way by raising rates should inflation emerge – a major policy shift announced in August that has huge implications for the economy and the application of fiscal policy. 

Wall St or Main St?

Joe Biden would raise taxes, which is supposed to be bad, but Trump’s tax cuts disproportionately benefited the rich, large corporations and people who own stocks. This does not generate additional consumer spend in the same way as a more evenly distributed tax cut. To borrow a line from a leading economist, how many additional swimming pools did Jeff Bezos put in because his tax rate fell under Trump? 

JPMorgan conducted an investor survey recently: 79 per cent said the worst-case scenario would be a Democrat president and Senate, whilst 49 per cent said the best would be a Republican president and Senate. But that may be more about a fear of regulation (and higher taxes) than a belief that a Biden presidency and Democrat clean sweep would be bad for stocks. 

Meanwhile the BoA report also highlighted how renewable energy stocks may front run a Democratic victory in presidential and Congressional elections. Clean energy stocks make up a large part of our Biden20 Blend. 

Stocks sink as Trump tests positive for Covid-19

US Presidential Election

President Trump and First Lady Melania have tested positive for Covid-19. How has the market reacted, and what does this mean for the US Presidential Election?

Stay on top of the polls and all the latest election news with our dedicated US Presidential Election site.

Who won the first US presidential debate?

US Presidential Election

Blonde Money CEO and XRay regular Helen Thomas recaps what we learned – or didn’t – from the first debate of the US Presidential Election between President Trump and Joe Biden.

Don’t forget you can catch the latest insight from Helen every week on XRay.

 

US Presidential Election: To Vote, or Not to Vote – That is the Question

US Presidential Election

As the 2020 US Presidential Election creeps into view, the United States is a country divided. With polarisation increasingly prominent, and ever-stronger partisan loyalty, the famed ‘floating voter’ is nearing extinction.

Whilst almost 40% of the electorate identify themselves as independents, these figures hide a residual bias which exists in most. Recent research has found that 93% of the electorate have some sort of partisan lean, with only 7% considered truly neutral. This illustrates the desire of many American voters to be considered independent, even if they are almost certainly going to vote for the same party in every instance.

And yet, conventional wisdom tells us that the most successful campaigns are those which reach out the middle ground and win over these floating voters. If the aforementioned research is correct, such a strategy may no longer be effective.

Instead, we suggest that turnout is the key to victory in modern US elections. The most important decision a voter can make is not who to vote for – for the vast majority this is a foregone conclusion. Rather, the voter choice that really matters is whether to vote at all.

One need only look back to 2016 to exemplify this point, where Hillary Clinton lost the election by less than 100,000 key swing state votes. By comparison, 4.4 million people who voted for Obama in 2012 didn’t vote in 2016, more than enough to overturn Trump’s wafer-thin victory.

Some research has even suggested that, had turnout remained at 2012 levels, Clinton would have won 323 electoral college votes – enough to deliver her the White House comfortably. In states such as Michigan, Wisconsin, Pennsylvania, Florida, and North Carolina, it was a failure to turn out their own voters which scuppered Clinton, not a failure to win over the centre.

Can Democrats recover African American vote?

The challenge for the Democrats in this election year, both at the Presidential and Congressional level, will be to recognise this as the root of their failure, and to take action in response. In particular, rebuilding African American turnout could prove decisive, after the 7% drop which occurred between 2012 and 2016.

Perhaps Biden’s choice of VP is a recognition of the importance of African American turnout. Although Kamala Harris is unlikely to provide an Obama-sized boost to African American enthusiasm, she may go some way to bridging that gap.

This is especially likely in the context of the Black Lives Matter movement, which could also help to increase turnout among minority demographics.

Which campaign will adapt best to mail-in ballots?

The prominence of mail-in ballots could throw a spanner in the works, though, with campaigns having to radically change their Get Out the Vote operations in response to the new circumstances.

Whereas previous elections have seen a focus on last-minute voter outreach, the early registration deadlines will mean that a longer-term strategy is required. The campaign which adapts to these changes most effectively will gain a critical edge come election day.

To vote, or not to vote: that is the question. The answer will decide who resides in 1600 Pennsylvania Avenue come 2021.

US election playbook: navigating the volatility with 40 days to go

US Presidential Election
  • Temporary dislocation
  • Too many variables
  • Bigger risks ahead

Given the once-in-a-lifetime pandemic, the US election is being held in exceptional circumstances. All else being equal though, we can deduce something about how current polling might play out. The market consensus is that a Biden win and Democrat clean sweep will lead to higher taxes and regulatory risk for a large number of corporates, which will hurt equities.

There are however plenty of other ways in which the market might like a Blue-nami, from pragmatic trade policy to combined loose fiscal and monetary policy.

Trade

Could Biden open up trade with China again? The Democrat candidate is taking a hard line on China – which is playing well with both sets of voters – but will he become more emollient once in office?

Tony Blinken, a senior foreign policy adviser to Biden, said fully ‘decoupling’ with China as urged by Donald Trump is ‘unrealistic’ and ‘counter-productive’. Biden will instead reset ties with China while seeking to redress unfair practices on trade and IP. However, it will be difficult for Biden to withdraw Trump’s tariffs immediately, without gaining significant concessions.

Biden has to play the hand Trump dealt, but he might seek to drive greater consensus with China and work out a more pragmatic trade policy.

MMT

Biden may not have expressed much support for Modern Monetary Theory – in fact he was once a fiscal hawk in the old style – but under a Democrat Congress and White House there would be no rush to reduce the deficit.

In fact, Biden’s economic stimulus plans entail more borrowing. Whilst it is a stretch to suggest that Biden is a supporter of MMT, the economic and social backdrop has changed drastically in recent years and it is gaining traction in more corners of the Democrat machine.

Moreover, the Fed’s recent average inflation targeting shift opens up a new front for MMT proponents in explicitly pushing full employment as the primary goal of monetary policy.

The Fed

At Jackson Hole the Fed announced a policy shift that ought to have a material impact on expectations around rates and inflation. The Fed is taking a more practical approach than in the past when it has been guided by theories about maximum employment, the Philips Curve and inflation.

Instead of saying that the economic outcomes need to fit its models – which have always been nothing more than a best guess – it will let the outcomes drive the policy. Some would say this is a step towards fully embracing MMT, even if Powell has been against this approach in the past.

The fact is that the crisis has thrown MMT from economic theory to economic practice without any real debate. Powell has embraced a central tenet of MMT – why should millions of people be thrown on the economic scrapheap and left unemployed as the price to pay for low inflation.

Under a Democrat-led Congress and White House, MMT proponents will gain a louder voice, with implications for federal economic policy.

Overall, whilst Biden’s tax policy might be tougher on Wall Street, trade and monetary policy could be easier. But it is not quite so straightforward as that. With polls close in the key battleground states and huge uncertainty over the potential impact of postal votes, it is currently difficult to put a price on any outcome, which in turn makes it hard to trade the election per se.

Going long or short based on the outcome is far too simplistic and you could just as easily call it wrong as get it right. What we can say is that the pandemic, the economic recovery and the monetary policy response are longer term going to matter much more. And so, all else being equal is far too simplistic a view to take in what’s a very complex situation.

Will the election outcome be contested?

The only thing the market wants is to get the election out of the way – the only real danger would be a long period of legal disputes post-election, but again this ought only to create volatility at the time and would eventually be forgotten once it all shakes out.

Veiled threats by Trump to not accept a Biden win are probably over-analysed. The Supreme Court (and Secret Service) would see to that. It turns out the most antagonistic election in a generation for the people of America might well end up merely a short term ripple when it comes to markets, given everything else they have to contend with in the long term.

With 40 days to go, the race is tight and in the major battlegrounds it is too close to call. Markets will be volatile and dislocations will occur that present opportunities. The best approach is to be agile enough to contend with both outcomes and no clear winner on the morning of November 4th.

You can follow our election coverage here.

Congressional Elections: Why do they matter?

US Presidential Election

While the race for the White House has received outsized attention, developments such as the failure to reach a new coronavirus relief bill and the looming threat of a government shutdown have heightened the stakes in the battle for control of Congress.

The House of Representatives looks firmly in the hands of the Democrats after the inroads they made in the 2018 midterms. Control of the Senate is therefore crucial. It’s currently in Republican hands and the Democrats would need to win four seats of the twenty-three up for grabs in order to gain an overall majority.

With Biden ahead in the Presidential polls, can the Democrats feel confident about the Senate?

With party now trumping candidate, the general momentum towards the Democrats should give them some hope. 2016 was the first year on record where every single state holding Senate elections voted for the same party for Senate as for president.

It’s no longer the case that voters split their ticket when they go to the polls. For example in 1980, despite Republican Ronald Reagan winning the White House, 12 of 31 Senate seats went to the Democrats.

Now though, the electorate is so polarized that party dominates across elections. If you voted Trump, you vote Republican across your ballot paper.

This means state-wide elections have increasingly been nationalized: Senators struggle to separate themselves from their national parties. This has been exacerbated under President Trump, where almost every Republican Senator has embraced him of fear of losing his conservative base – this is especially the case for the Republican Senator in Arizona, Martha McSally, who has pivoted to the right and linked her fate inextricably to Trump’s.

Rare candidates, like Maine Senator Susan Collins, have been able to maintain an identity distinct to the national party’s and keep split-ticket voting alive – but even Collins’ long-time local reputation as an independent, in a centrist state with a history of electing moderate women, is under threat for her polarizing pro-Trump voting record. She backed Brett Kavanaugh for his confirmation to the Supreme Court, in support of her President – and saw her popularity with female voters plummet.

Replacement for Ruth Bader Ginsburg becomes key election issue

With any coronavirus relief unlikely to pass before the election, control of the Senate will be crucial to any alleviation of the recession. This has been exacerbated by the death of Supreme Court Justice Ruth Bader Ginsburg.  Party politics will now be bogged down in finding her replacement, rather than finding a fiscal compromise.

While Trump has made this a key issue, going as far as releasing an unsurprisingly political list of possible appointees, Biden has in turn also made this a focus of his candidacy, promising to nominate a historic first: a black woman. Given the increasing frequency of constitutional hardball around Supreme Court confirmations, control of the Senate will be a prerequisite to a successful nominee.

Given that the states in the Senate up for re-election are very Republican, this development will energise the base, reducing the likelihood of a Democratic majority.

However, on the Presidential level, the blue wall which deserted Hillary Clinton in 2016 looks likely to be rebuilt, given the intensely partisan nature of the battle to come. Mitch McConnell should be pleased by this weekend’s news, Donald Trump should not.

With both sides becoming more entrenched the elections look set to deliver a split between the legislature and the executive. With a more polarized Congress, key platform items promised by both candidates will be tougher to achieve. Expect partisan  investigations and tense hearings to persist no matter who wins.

Blue-nami or Red Wave? How the US election result could impact markets

US Presidential Election

How will the US Presidential Election impact markets? Will there be Democratic sweep of all three houses; the White House and both houses of Congress? Or can Donald Trump defy the pollsters and hold on for four more years?

Whatever the result, there is sure to be an impact on financial markets. We’ve put together all the potential outcomes and how these might impact the US dollar, S&P 500 and Treasury yields in a handy guide – you can find yours today in platform message centre.

US Presidential Election Weekly: Federal Reserve & US Election

US Presidential Election

Our resident political commentator, XRay regular and Blonde Money CEO Helen Thomas, takes a look at the latest big developments in the race for the White House. This week, the focus is on why the Federal Reserve’s switch to average inflation targeting could help Donald Trump in the polls over the coming weeks.

Don’t forget you can catch more great insight from Helen every week with Blonde Markets and our Election2020 Weekly shows on XRay. For all the latest election updates, including polling data, visit our US Presidential Election 2020 microsite.

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