US-Wahl und kein Präsident?

A US election but no president? What might happen on election day and beyond

  • High proportion of postal ballots means a high likelihood of there being no clear victor on the evening of the election

  • A close outcome increases the chance of a contested election

  • In the worst-case scenario, Congress will be forced to decide on the next US president

The election on 3 November to determine who will be the next US president will be staged under exceptional circumstances. The fact that the vote happens to be taking place during a global pandemic is just one of the challenges.

It is also concerning that President Trump is continually asserting that the only way he could lose the election is if it were rigged. This is driving fears of a disputed outcome and, in the worst-case scenario, a contested election that would then have to be decided on in Congress. It is therefore worth looking at what might happen on the evening of the election and in the days and weeks that follow.

Election evening and the week afterwards

At the end of the evening on election day, it is highly likely that there will be no clear victor, but that President Trump will be in the lead. In the days immediately after the vote, the results should then shift significantly towards Joe Biden. The closer the outcome, the longer it will take to obtain a definitive result.

Why is this? The pandemic means that a very high proportion of postal ballots are expected. Mail-in voting is traditionally used much more by the Democrat side than by Republicans. A survey by Suffolk University in Boston shows that around 47 per cent of Democrat voters plan to send in a postal ballot, compared with only 21 per cent of their Republican counterparts. It takes much longer to count postal votes, not least because of the need to verify signatures, and in a number of states this process does not even begin until the election day ballots have been tallied. Moreover, some postal votes do not have to reach election officials until after election day. This is even the case in battleground states such as Pennsylvania, for example.

But could there still be a victor on the evening of the election? If Joe Biden manages to comfortably win Florida and possibly North Carolina too, he may be able to declare himself victor in the evening. Both are among the few swing states that will be in a position to count most of their postal votes before the day is out. A triumph in Florida would be a clear indication that Joe Biden has done very well. He would then only need to win one of the three rust belt states (Michigan, Pennsylvania or Wisconsin) to be assured of victory. The latest polling puts his lead in these states much higher than in Florida. This means that a win in at least one of them would be very likely if he were to secure the Sunshine State.

What will happen if President Trump is ahead on the evening of the election? President Trump is likely to use the result on the evening of the election to declare himself the victor, at least that is what his comments so far appear to indicate. For him, the result on election evening will be decisive. If there is then a shift towards Biden, Trump will say that this could only be because the postal voting was rigged. His main objective in making such comments is probably to pave the way for a contested election.

Although the major TV broadcasters have agreed to show restraint by not prematurely declaring a winner, there is likely to be a lot of noise in the week after the election from supposed sources of inside information regarding the final result in swing states. Provided the outcome is sufficiently clear, the victor will be announced around one week after the election.

A close outcome heightens the risk of a contested election

A close outcome would also increase the likelihood of the results in certain states being contested and recounts taking place. In theory, the result in all states has to be verified by 8 December so that the electoral college can be formed.¹ If the results in the states have been definitively verified, the election process will continue as scheduled regardless of whether or not the individual candidates accept the outcomes.

Difficulties will then arise if the results in individual states are not verified at all (no electoral college delegation is selected) or if the result verified by the governor is not accepted by the state legislature and two different delegations are selected – one Republican and one Democratic. The battleground states currently have Democrat governors but Republican majorities in Congress. In this situation, Congress would be asked to determine the outcome of the election. The House of Representatives would decide who should be President and the Senate who should be Vice President. The outcome would be uncertain, as there is no clear and consistent legal framework for such a scenario. Based on the current majorities in Congress, Donald Trump would have a slight advantage. However, this may yet change depending on the outcome of the congressional elections.

One thing is certain: The current term of office of Donald Trump and Mike Pence ends at 12 noon on 20 January 2021. If, by this time, no President or Vice President has legally been appointed by the Electoral College or Congress in order for them to take office, then the ‘line of succession to the president’ rule would come into play, and Nancy Pelosi would become acting president.

Implications for the capital markets

We wrote at length about the implications of the three conceivable election outcomes for all asset types in our previous RIS notes on the US presidential election and in our MORE format. The chart below summarises how we expect the prices of equities and Treasuries and the US dollar to be affected. A contested election would mean a phase of elevated to heightened volatility in the capital markets and would be comparable with a risk-off event. Equities would weaken and trading in Treasuries would firm. The 2000 election between George W. Bush and Al Gore can be used to give a rough indication of what might happen this time. By the end of November that year, the S&P 500 had fallen by 8 per cent, while yields on ten-year Treasuries dropped by 40 basis points after the election (from 5.8 per cent) and then by a further 40 basis points by the end of 2000 (to 5.0 per cent). The direction that the US dollar will take is less clear. Although the greenback generally experiences an uplift in periods of high risk aversion, the source of the uncertainty would in this case be the US itself, which is why we are less sure about which direction the currency will move in. And alongside the general uncertainty, it is possible that the noise factor from supposed inside information in the week following the election could cause the capital markets to see-saw.

Three conceivable election outcomes and their implications for the capital markets

Three conceivable election outcomes and their implications for the capital markets
Small arrows indicate the immediate reaction to the election outcome, large arrows indicate the medium-term expectations.
  1. 1 In the US presidential election in 2000, this was the date on which the Supreme Court stopped a recount that was under way in Florida. As George Bush was leading in the recount at this time, Al Gore was forced to accept the decision and concede defeat. Should something similar happen this time, it is doubtful whether either of the candidates would accept a comparable decision by the Supreme Court.

As at 17 September 2020