Mail-in Ballots: The Battle That Will Decide the War?

US Presidential Election

Track all the latest developments in the race for the White House with the special US Presidential Election 2020 site from Markets.com.

With the coronavirus pandemic calling into question the safety of in-person voting this November, many states have already taken steps towards allowing voters to cast their ballots from home during the US Presidential Election 2020.

President Trump has repeatedly spoken out against such actions, citing rampant voter fraud as a potential consequence of mail-in voting. However, behind the veneer of concern for electoral integrity, lies the real reason for Trump’s focus on the issue: turnout.

Turnout concerns for Trump as ‘swing states’ expand mail-in voting

If voters had turned out in 2016 as they had four years previously, Hillary Clinton would now be sitting pretty in the White House: a recent study shows that her 2016 defeat was largely down to a sharp decline in minority voting.

Recent research by the New York Times suggests that the proliferation of mail-in voting nationally could increase overall turnout by as much as 9%, with particularly large upswings among young and minority voters.

Given that these demographics heavily favour the Democrats, it is easy to see why the President is eager to discourage any move towards mail-in voting for November’s election. And yet, despite Pres Trump’s protestations, every one of the crucial ‘swing states’ has already taken steps towards a liberalisation of their vote from home policy.

Do mail-in ballots really disadvantage Trump?

If we look at each of these states in more detail however, we see Trump has less to fear. The rust belt states like Michigan, Wisconsin and Pennsylvania simply don’t have the diversity that would benefit from the mail-in votes.

If the Democrats are winning there, then they’ve already got enough cross-community support to be sure of success, whether it’s through ballots cast in person or through the post.

Focus on Florida in US Presidential Election

There is one state that is diverse enough to cause Trump to stumble, and that’s Florida. Famous for George Bush’s hanging chad victory in 2000, where he scraped out a gain of just 0.01% of the vote, it’s possible that mail-in ballots might boost the Democratic demographic enough for Biden to steal the state.

Hence Trump’s latest provocation. He has threatened to withhold funding from the US Postal Service (USPS), which could render mail-in voting unfeasible. It could also upset the President’s own voter base, as it risks alienating rural voters who are heavily dependent on the USPS.

Will threatening USPS aid progress on new stimulus bill?

The truth is that he is merely using this threat as a bargaining chip in the latest round of Congressional stimulus negotiations. If the Democrats play ball with his fiscal plans, he will leave the USPS alone.

It also is yet another classic Trumpian tactic to provoke the woke. He relishes poking at the dividing lines of America. The noise delivers oxygen to his campaign, stealing headlines from his opponents, as well as forcing the liberal left into ever more pearl-clutching outrage that incenses his right-wing voter base.

Impact of mail-in voting on the Senate

Given that any President’s legislative agenda depends on which parties hold the balance of power in Congress, mail-in ballots might prove decisive for determining if the Republicans can hold onto the Senate.

The picture here is rather similar to that of the Presidential election: the vast majority of competitive states lack the diversity required for mail-in voting to be decisive, but a small and significant minority should still be highlighted.

In particular, of the ten states that will decide the balance of power in Washington come 2021, two are likely to see a sizeable Democratic advantage, thanks to new vote from home protocols: Georgia and North Carolina. However these are typically Republican leaning, so the Democrats will have to be sweeping across the nation to ensure they pick them up.

How worried should Republicans be?

Given that many states have already opted to shift towards mail-in voting, the Republicans have already lost the battle over voting from home. Whilst the President will continue to make a lot of noise on this issue, dragging out threats of USPS defunding, come election day voting from home will be ubiquitous.

Far from being the final nail in the coffin for the Trump campaign, voting from home poses only a minimal obstacle to re-election in the vast majority of swing states.

Florida is the only, but perhaps crucial, exception to this rule. Whilst not election-deciding in and of itself, we have seen Presidential elections in the past be decided by far, far smaller margins. And in the case of the Senate, we see a similar story: small but potentially crucial areas where mail-in voting could have the deciding impact.

Advantage Biden. Advantage Democrats. But only just.

Don’t forget to check out the latest polling data for the US Presidential Election 2020.

Will Joe Biden crash the stock market?

US Presidential Election

Will stocks go down with a Biden win and Democrat clean sweep? 

Joe Biden launched his $700bn economic plan by taking aim at Wall Street, banks, the stock market and shareholder capitalism in general. Based on polling data, the stock market will need to better reflect the chance of a Biden presidency combined with a Democrat clean sweep of the House and Senate.

Biden issued a threat to end to the era of shareholder capitalism – the idea that the only responsibility a corporation has is to its shareholderBiden, whose policies would tend to raise taxes and regulation risk for corporate America, added: During this crisis, Donald Trump has been almost singularly focused on the stock market, the Dow and the Nasdaq. Not you. Not your families.” 

The argument about taxation is central to the thesis, as explained by Goldman Sachs in a recent note. The bank noted the US used to have one of the most uncompetitive corporate tax regimes in the OECD at 37% vs the average 24%. Donald Trump changed that with Tax Cuts and Jobs Act (TCJA) 2017… 

Under Trump the effective tax rate paid by median S&P 500 company fell by 8 percentage points, from 27% to 19%, which boosted EPS in 2018 by 10%. 

Since 1990, declining effective tax rates have accounted for 200bps of the 400bps increase in net profit margins and 24% of total S&P 500 earnings growth, according to GS.  

But Joe Biden could undo the cuts and lower earnings for the average S&P 500 company. Under his plans statutory federal tax rate on domestic income would go up from 21% to 28%, reversing half of the cut from 35% to 21% instituted by the TCJA, according to the Tax Foundation.

GS notes that a Biden presidency could also result in a doubling of the GILTI tax rate on certain foreign income, a minimum tax rate of 15%, and an additional payroll tax on high earners.  Biden could increase capital gains tax, which could push investors to sell down stock holdings before it is introduced. 

According to GS this would cut the S&P 500 earnings estimate for 2021 by roughly $20 per share, from $170 to $150. So, the average EPS would fall 12% just at the time that earnings need to rise to support valuations. The S&P 500 traded at a forward earnings multiple of about 23x in June – the highest since 2001 

Regulation risk would also rise on the expectation that a Democrat-controlled Congress and White House would impose tighter restrictions on corporate behaviour, such as buybacks, and increase the cost of doing business by raising the minimum wage and employer contributions. Finally, higher taxes on the rich leaves less cash to invest in stocks.

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