At the Security Traders Association (STA) 2020 virtual Market Structure Conference Wednesday, Joel Oswald and Chris Wilcox of the D.C. law firm William & Jensen offered their speculations and predictions for the presidential election and the markets in a panel titled “Election 2020: A Crucial Moment.”
Crucial indeed. Investors are bracing for what may happen to the markets depending on who becomes president and what happens in the House and the Senate.
According to Oswald, a recent NBC and WSJ poll has Joe Biden leading by 14 points. A few recent polls show a much closer race. After last Tuesday’s presidential debate, average polling data appears to be showing a 1.5% gain for Biden. However, “Polling doesn’t necessarily matter, as we learned in 2016,” Oswald said. “What matters is to get to the magic 270 number [the number of electoral votes necessary to win]. Tonight’s vice presidential debate may be more crucial in determining that.”
“Polls can predict the popular [vote] outcome but not the electoral college,” Wilcox said. “You have to look at the polling in the battleground states – those will really matter.” Wilcox added that the polls are only of likely voters, and it is very difficult for pollsters to predict who will actually vote.
“Every state has different rules for counting absentee ballots,” he said. In many states, these ballots are not even opened until after election day. “Campaigns can challenge ballots that look erroneous…but what rises to the level of an error? Ultimately that can end up being ruled on by a judge. There is of course a chance we won’t know the result of the presidential election until December of this year.”
Oswald said this could turn out to be the most litigated election in history.
When it comes to Senate races, there are some close races that have the potential to break very late, Wilcox said. There is a close race in Arizona, where a special election will be held Nov. 3 pitting Republican Martha McSally against Democrat Mark Kelly, the husband of Gabby Giffords. Republican Senator Thom Tillis is also in a close race in North Carolina, and there are two close Senate races in Georgia, he said. (This includes the race between GOP Sen. Kelly Loeffler, GOP Rep. Doug Collins and Democratic candidate Raphael Warnock.)
Only roughly ⅓ of the Senate is up for reelection every two years, so you get a different mix every two years of which party has seats up for grabs and how those break down, Oswald said. This year, Republicans have 23 of the 25 seats that are up. So the Republicans are defending more seats and the Democrats are challenging more.
It is possible that who controls the Senate – Republicans or Democrats – might not even be decided. Absentee ballots could drag out the results there as well, Wilcox said.
The big question asked by moderator Jim Toes of STA was, “What can we expect in a Biden victory? What are the consequences for the financial industry?”
The panelists agreed that the first 100 days of any presidency are of utmost importance, as that is when a new administration begins to implement their agenda.
According to Oswald, the Democrats have run on change and are going to want to make those changes before they get bogged down with other things. “In this case, if Biden wins, there is probably a greater chance that the Democrats will control the Senate,” he said. “Of course implementing those changes is much easier if the winner controls both the House and Senate.”
In the first 100 days, Oswald said, “I think you’ll have an effort on stimulus to the economy and a COVID response. A Biden administration will likely finalize a spending bill to fund the government through the fiscal year. But that will take time. Will they get to an infrastructure bill early on? We can speculate, but it’s hard to predict.”
In the Obama administration, Wilcox said, following the market collapse of 2008, their first 40 days were consumed with how to get the economy going again. Whoever wins the election will be facing a similar situation.
“We can’t get off the ground until we pick ourselves up and dust ourselves off,” he said, mentioning Fed Chairman Jerome Powell’s recent remark that without further stimulus the country’s recovery is threatened. This is particularly acute for Biden, who “considers the 2009 stimulus bill as part of his legacy. I think it’s likely [a Biden administration] will try a stimulus to the economy.”
“There has been a lot of speculation on an infrastructure bill, not just for highways and bridges but for broadband and water infrastructure as well,” Wilcox said. “Investment in public goods could work quickly” to help stimulate the economy.
However, “If we don’t have the coronavirus under control, that makes putting people to work together at a given site difficult,” he added. “Biden will likely be focused on how to get people who lost jobs to COVID back to work and back with health insurance.”
As of last week, the government was funded through mid-December, he added. “It’s likely that in December they won’t reach a broader government spending deal if the election has not been decided by then. We could have another Congress shutdown over the holidays. Then the question is how to fund the government for the rest of the year?”
A Financial Trading Tax (FTT) is again being discussed in several states, including New Jersey, and New York already has one in place. It has been talked about as one means of paying for infrastructure. According to Oswald, the FTT previously had support only from progressives in the Democratic party, but the idea has now become more mainstream. “We’re looking at enormous budget deficits at the federal level. That makes all taxes generally more on the table if there is a Democratic party sweep. If the Republicans maintain control, the risk of an FTT is much less.”
However, Wilcox said, “If you’re looking at an economic stimulus package that includes an FTT bill in the first 100 days, the chance of an FTT being attached is much lower because the objective of a stimulus bill is to stimulate the economy, and an FTT is seen as possibly having a chilling effect on activity and the ability to access capital.”
It’s still an open question whether, if the Senate flips Democratic, the Democrats will change the filibuster rule. Oswald said he thought it was very likely the rule would be modified or eliminated if there is a Democratic sweep in Congress.
“If that happens,” he said, “bills will go through the House and Senate so much faster. There will be a lot less debate. The Senate has been regarded as the most deliberative body in the world. That could change it to a more reactive body.”
A Biden presidency would likely bring a focus on minority leaders at the head of various regulatory agencies, as well as a bigger focus on ESG, corporate government disclosures, and climate disclosures, Oswald added.
Wilcox said a lot of issues in the House Financial Services Committee “would flow through to the agency level” in a Biden presidency. “Proxy rules are likely to be front and center again. There will be a longer term focus at the agency on looking at both racial and socioeconomic disparities in particular markets and access to capital lending, with an emphasis on broadening and becoming more inclusive.”