by Greg Valliere, AGF Management Ltd.
JOE BIDEN LEADS COMFORTABLY in virtually every poll and is the clear favorite — today, at least — to win the presidency. The markets get that. What the markets have to worry about, with good reason, is a tidal wave election that sweeps Democrats into control of the Senate, while strengthening their power in the liberal House.
THE TRIFECTA — the Democrats controlling the White House, Senate and House — is a growing market threat because that scenario would increase chances of tax hikes and activist legislation. A roll-back of Donald Trump’s regulatory reforms would be a given; Biden could accomplish that through executive orders.
BIDEN’S DOUBLE-DIGIT LEAD seems a bit exaggerated, especially his 14-point margin in this week’s New York Times poll, which showed him with a 21-point lead among independents, a 22-point lead among women and a 28-point advantage among white, college-educated voters. We’re more inclined to believe the RealClearPolitics aggregate of all polls, which shows Biden ahead by 10.1 points.
WE THINK NUMBERS LIKE 14% partly reflect the enormous lead Biden has in states like California and New York; he’s likely to win both by something like 65 percent to 35 percent. In 2016 Hillary Clinton won California by an astonishing 4.3 million votes, which undoubtedly inflated her pre-election nationwide polls.
RATHER THAN FOCUS ON NATIONWIDE VOTE projections, we’re more inclined to look at key electoral vote states, where the election looks closer — Trump could win Pennsylvania, Ohio, and Florida, where he’s close (but still behind). Trump still has a plausible path to 270 electoral votes, although he’s the clear underdog today.
SHOULD WE BELIEVE THE POLLS? We get this question more than any other. Most polls have fairly accurate representations of all the key groups — young and old, rich and poor, black and white, etc. But it’s more difficult to predict turnout; what if it’s pouring rain in Columbus, Ohio, on Nov. 3? Mail-in ballots could be crucial, which Trump fears.
BECAUSE THE POLLS ARE IMPRECISE, we rely on the RealClearPolitics aggregate, but even that’s not perfect. Accordingly, we’re more inclined to look at the trend, not the specific number — and the trend most definitely has been moving against Trump, who gets poor ratings for his handling the pandemic and race relations.
SO FOR NOW, we’ll stick with the RCP number of 10.1%, which could be enough to deliver the Senate to the Democrats. A state-by-state review shows the Republicans have a chance of narrowly keeping the Senate; their vulnerable seats in Colorado and Maine are still winnable, and the Democrats are likely to lose a seat in Alabama.
BUT IF A TIDAL WAVE is coming — if a brutally negative assault on Biden’s mental acuity doesn’t succeed — the markets will have to worry about an all-Democratic
Congress approving significant tax hikes on corporations and individuals, with an
agenda that would not be favorable for fossil fuels, the defense sector, health care stocks, the financial services industry, etc.
HOW FAR LEFT WILL BIDEN GO? He made a lot of promises to Bernie Sanders and Elizabeth Warren in the spring as he nailed down the nomination, which makes us wonder just how moderate he will be if elected. Biden could face constant conflict with the very liberal House — or he could capitulate.
IF THE WILY MITCH McCONNELL is re-elected, as expected, he will use filibuster rules (assuming they aren’t altered) to block most radical legislation. But make no
mistake — a trifecta would produce a far less market-friendly environment than investors enjoyed for much of Trump’s first term.
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.
