by Greg Valliere, AGF Management Ltd.
THE OTHER BIG ELECTION: In a year as crazy as 2020, it’s fitting that elections for the Senate this fall could produce a 50-50 tie and recounts, just as the presidential race could be disputed. We might not know who controls the Senate until a special election in Georgia in early January.
LET’S TAKE A QUICK LOOK this morning at how two states could get us to a deadlock, which would be broken by the party that wins the White House.
FIRST OF ALL, WE EXPECT A CLOSE PRESIDENTIAL RACE: If Joe Biden wins in a blowout, the Senate, now 53-47 Republican, almost certainly would fall to the Democrats. Likewise, the GOP would probably keep the Senate if President Trump wins re-election.
ASSUMING A CLOSE PRESIDENTIAL RACE, The Democrats are likely to lose only their seat in Alabama. although an upset in Michigan, where the Democratic
incumbent is not comfortably ahead, can’t be ruled out. But in all likelihood, the Democrats would need to pick up four GOP seats in order to get a tie, giving them control of the Senate if Biden wins the presidency.
CAN THE DEMOCRATS PICK UP THOSE FOUR SEATS? They’re clearly ahead in Colorado and Arizona, which means they would need to capture two more seats — in North Carolina, where GOP Sen. Thom Tillis is trailing slightly, and in Maine, where veteran moderate Susan Collins is trailing slightly but has a history of finishing strongly. All the Republicans have to do is retain either of those two seats and they probably would keep the Senate.
IF BIDEN WINS NARROWLY, WE COULD SEE only a three seat net Senate pickup for the Democrats, which would keep the GOP in Senate control. If Biden wins easily, perhaps another two or three Republican seats — in Montana, Iowa or Georgia — could fall and the Democrats could have something like a 52-48 Senate majority.
WHY IS THIS IMPORTANT FOR INVESTORS? If Republicans lose the Senate, the Mitch McConnell firewall — which has blocked progressive legislation from the House — would crumble. It’s also important for investors because a tie could keep Sen. Elizabeth Warren in her Senate seat; the GOP governor of Massachusetts would appoint a Republican if she left to become Treasury Secretary, a prospect that worries the markets.
A HUGE WILD CARD: If the Democrats take control of the Senate, they could be tempted to change filibuster rules, which would give them the ability to pass legislation by a simple majority, without getting 60 votes, which is required now to cut off filibusters. This would NOT be a good story for financial markets; anxiety would escalate over sweeping new taxes and big new government programs sailing through both houses.
OUR BOTTOM LINE is that it’s too early to be sure that the Republicans will lose
control of the Senate. That would require Collins losing in Maine and Tillis losing in
North Carolina, and we have a hunch that one of them could prevail, potentially leaving the Democrats one seat short of their goal. Much depends on whether Donald Trump can get his act together and stay on message in the next seven weeks.
The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.
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This post was first published at the AGF Perspectives Blog.
