Well, election day is finally here. An estimated 79 million ballots have already been cast through mail-in and early in-person voting, or just over 50% of 2020’s total ballots cast, but this evening we end the voting process and, as polls close, begin the counting process. Carson Investment Research has been covering the election and its market implications since back in March. (See our Election Landing Page to catch up on recent posts.) Here’s our quick guide to watching the election results.
1: These Seven Swing States Are the Key to the Presidential Election
These seven states are very likely what will decide the election. That doesn’t mean the other states don’t matter. It’s just that if any states outside of these seven an unexpected way, the night is going very well for one candidate and very poorly for the other. Excluding swing states, Vice President Kamala Harris has 226 electoral college votes that are generally rated safe, likely, or lean Democrat; former president Donald Trump has 219 that are generally rated safe, likely, or lean Republican. It takes 270 electoral college votes to win the election. That means Harris needs 44 from swing states and Trump needs 51. You can play with the math, but here are the electoral college votes that go to each swing state.
2: Don’t Forget Congress – How to Watch the Senate Race
Republicans are solidly favored to take the Senate, although it’s by no means a lock. Currently, Democrats have a 51-49 majority. With West Virginia’s Senator Joe Manchin (D) not running for reelection, his seat is a safe pick-up for Republicans. From there, Democrats have a narrow path to retaining a majority. First, they have to win the presidency (since the Vice President breaks the tie). Then, they need to avoid losing any other seats (or flip as many as they lose). The most vulnerable Democratic seat is Jon Tester in Montana, who is a clear underdog at this point, although if Harris outperforms expectations, he probably would as well. If Democrats lose Tester’s seat, their best chance for a pick-up, although unlikely, is in Florida and Texas or the independent candidate in Nebraska. If Trump has a good night, Democratic seats in Ohio, Wisconsin, Michigan, Pennsylvania, Arizona, and Michigan may be vulnerable.
3: Don’t Forget Congress – How to Watch the House
The only way to watch the House is to be very patient. It may take longer to know the outcome of the House than the outcome of the presidency. Every House seat is up for election every two years. With a closely divided electorate, the odds are basically a coin flip, but it will take a while for the coin to land. Especially since a lot of close house seats are in California, and it may be days (or weeks) before we get final mail ballots.
4: We Are Unlikely to Know the Results Tonight
If there’s large polling error in one direction or the other, we could have an early outcome (before the sun comes up on Wednesday), but more likely we’ll have to wait at least a few days. As more voters choose to vote by mail, counting takes longer, since mail-in ballots must be verified and take longer to process. In 2020, it took four days before AP made a call on the presidential race. (We do understand that AP does not have a Constitutional role in election outcomes, but from a market perspective, an AP call provides enough clarity to be meaningful.) In 2022, control of the Senate likewise took four days to determine, but control of the House took eight days.
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5: Polls Are a Very Dull Tool
Based on history, polls on average have been +/-3% of the actual election result, sometimes also called normal polling error. If one candidate outperforms the polls by 3%, the polls weren’t bad. They were normal. People just expect too much of polls. In fact, from an electoral college perspective it would not be completely surprising for all the swing states to go to either candidate. While the poll numbers are what you would use to estimate the outcome all else equal, they’re a very a dull tool. A wide range of outcomes is entirely plausible. As we’ve said before, polls and models don’t decide elections, voters do.
6: Don’t Get Too Excited About Early Results (but Get a Little Excited)
Polling error is generally correlated across states, but not always. Sometimes there are differences across, or even within, regions depending on the reasons for the polling error, and we won’t really know that until after the election. Different demographics being overcounted or undercounted can have a different impact on different regions. Don’t get too excited about early results favoring your candidate, but it’s certainly a better start than being on the other side. And word of advice, don’t pay too much attention to exit polls.
7: Early Bellwethers Indiana and Kentucky
Indiana and Kentucky are the first states to close their polls, at 630pm ET. 538 has created a map estimating what the outcome in every county in America might look like if the election were about a coin toss here. Hankering for (very) early news? Watch for the county-level outcome in Indiana and Kentucky and compare it to these benchmarks. These two states are not swing states but they’re in the Midwest and can give early clues as to how votes have shifted (or not) from 2020 and 2016. In Kentucky, this includes counties that form part of the greater Cincinnati metro area and in Indiana, counties that are part of the Louisville metro area.
8: North Carolina Is Likely to Be Early; Pennsylvania May Take a While
Polls close at different times across the country, even for states in the same time zone. States also vary in how quickly they count ballots and have different rules on when mail-in ballots can be processed and counted. For example, Pennsylvania and Wisconsin are not allowed to begin processing mail-in ballots until election day. Pennsylvania, Georgia, and Arizona were the slowest reporting in 2020 of the current swing states, although Georgia has had years when it counted quickly. North Carolina was the fastest. Combine that with polls in North Carolina closing relatively early as an eastern time zone state, and it could be the best early bellwether. At the same time, there have been some changes in North Carolina election laws that may slow things down. On the other hand, in Michigan there have been some changes that may speed things up. But it all may come down to Pennsylvania being somewhat slow, which is part of why the election may take patience.
9: Beware a Rainbow of Mirages
States have different rules about when mail-in ballots and early voting are counted and reported. On top of that, historically, Republican votes from more rural areas tended to come in earlier and votes from urban areas later. While that’s still true, how early voting fits into the mix means we may get different kinds of mirages in different states. Certain states may shift bluer or redder as the evening wears on. But the takeaway from all potential “mirages” is that how the count goes over the course of the evening depends on what gets counted first. The early count is not a random sample from the state. A general timeline of what to expect over the evening can be found here and here.
10: Harris’s Electoral College Count Will Lag Until the West Cost Closes
Assuming the non-swing states go as expected, the count of called states will likely favor Trump until we start getting West Coast results. That’s because California, the largest electoral college prize with 54 electoral votes, is among the states considered safe for Harris, as are Washington (12 electoral college votes) and Oregon (8 electoral college votes).
11: Expect Recounts and Litigation
Some states require recounts if the margin between the candidates is below a certain threshold. Some allow a recount request if the margin between the candidates is below a certain level. Recounts only very rarely materially change results but we won’t say never. Whether litigation has an impact depends on the nature of the issue and whether the claims have merit, but they also rarely change an outcome at this late stage. The Trump campaign’s legal strategy made no headway from a practical perspective in 2020. On the other hand, in 2000 there was a significant procedural question around the timeframe for recounts that went to the Supreme Court. The Supreme Court’s decision, Bush v Gore, ended the recount process and potentially decided the election.
12: A Delayed Outcome Is Unlikely to Change the Trajectory of the Markets
In 2020, the election was not called by AP (see comment above) until four days after the election. In 2000, it was a little more than a month before the Supreme Court ended the recount process and the election was called. In 2020 the S&P 500 climbed over 4% during the three trading days the result was unknown and continued to climb from there. In 2000, the S&P 500 was already in a bear market on election day. Consistent with the trend already in place, it fell over 6% during the month of election uncertainty but then fell another 4% after the election was decided, highlighting that it wasn’t the uncertainty that was driving the market. If it takes time to know the outcome, there certainly could be some market volatility, but history says just expect the trend we’ve already been seeing to continue.
There you have it. Carson Investment Research will continue its election coverage over the next week, but there’s nothing to do now but wait. Elections historically have not had a heavy influence on markets, and we continue to see reason for optimism no matter what the outcome. Yes, that’s an unpopular opinion, but our bullishness has been very unpopular much of the last two years and we’ll take the slings and arrows to provide the best insight we can, as always driven by facts, not feelings.
If you want even more election insight, see Ryan and Sonu’s recent conversation with Libby Cantrill, PIMCO’s head of US public policy and a managing director in PIMCO’s portfolio management group, in the latest episode of Facts vs Feelings podcast.
For more content by Barry Gilbert, VP, Asset Allocation Strategist click here.
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