Market Overview

This month's models have been posted. There are CHANGES in EVERY MODEL (highlighted in yellow).

Election 2020: The wave that wasn’t

Donald Trump won the White House by the narrowest of margins, and it looks like he lost it the same way. Meantime, the Republicans apparently kept control of the Senate and even eroded the Democrats’ majority in the House of Representatives.

Market response

Wall Street apparently got everything it most wanted.

The most important thing on Wall Street’s wish list is that it’s over. No more need for table-topping or contingency planning or what-if scenario building. Everybody gets to make their wagers now without having to hedge every bet. Or at least that’s what the consensus says. More on that below.

The other thing Wall Street wanted was gridlock. There was no blue wave. There was barely enough water pressure to squeeze Joe Biden through the pipe. While it’s not quite a done deal, it appears the Senate will remain in Republican hands. And if there’s anyone who thinks Senate Majority Leader Mitch McConnell is going to let Biden have even the smallest legislative victory, then they haven’t been paying attention. The business community can be assured that, for the next couple years at least, any Democratic attempts at increasing taxes on wealthy individuals or corporations will be thwarted.

Partially as a consequence of these results, stock prices surged through Election Week. (Remember “Election Day”? Good times.) The Dow Jones Industrial Average rose 5.6% -- almost 2,000 points – to 28,323 between Monday’s opening bell and Friday’s closing.

We say “partially” because there’s more going on than the election. Let’s remember that a lot of money was taken out of the market in the weeks leading up to the election, and a slingshot effect was foreseeable regardless of how the balloting went. The Dow closed November 6 pretty much where it closed October 22. Aside from that, the stock market benefits from a lack of competition from the bond market which, due to historically low – and persistently low – interest rates, is generating minimal returns.

Is it really over?

Elections really do end. Just ask Al Gore and Joe Lieberman. (Remember those Sore-Loserman signs? Classics.)

Bush v. Gore was a landmark decision that decided a presidential election, but it’s not a precedent for the current situation. First of all, William Rehnquist’s Supreme Court carefully stated in its December 12, 2000, majority opinion, “Our consideration is limited to the present circumstances”. Secondly, for the court cases to resolve in Trump’s favor, he’d have to pull off half a dozen Bush v. Gores because the circumstances are unique to every state his advocates have brought suit in.

As the Trump team has, at least thus far, met with little success in its court cases, the only other normative remedy open to the Trump campaign is recounts. Again, that didn’t work for Gore. Nor did it work for Hillary Clinton in 2016, when she found only 131 more votes in Wisconsin. For the past 50 years at least, it has rarely worked anywhere for anyone in any statewide race, according to NBC News.

Not that the current president is one to follow norms. There is one more Hail Mary he could throw: fiddling with the Electoral College. The reason why there is an Electoral College in the first place is that, back when news traveled only as fast as the fastest horse, you couldn’t expect even educated property holders to stay abreast of national affairs. So these men would deputize someone of stature in the community to cast their proxy vote for the presidency. They voted for the elector because they trusted his judgment. That’s why there’s no guarantee in the U.S. Constitution that a state’s electoral votes must go to the winner of the popular vote. It’s conceivable that a state that voted for Biden but has a Republican-dominated legislature could choose its own slate of electors rather than the ones approved by the populace. Pennsylvania, Georgia, Michigan, Arizona and Wisconsin then, would still be in play. This could tip the election if all the electors played along. Of course, there could be “faithless electors” who might choose the will of the people over the will of their state legislatures. The electoral vote could then go to Trump or to Biden or even to a 169-169 tie.

Still, if for any reason the Electoral College can’t do its job, it falls to the House of Representatives. For those who shudder or cheer the thought of President Nancy Pelosi, that scenario remains the longest of long shots. The Los Angeles Times has a great article of what happens in the case of an Electoral College stalemate.

In 1876, horse trading in the Electoral College gave Rutherford B. Hayes (R-Ohio) one more vote than Samuel J. Tilden (D-N.Y.)

What comes next?

It’s remarkable how ideological this campaign wasn’t. The Republican Party didn’t bother to adopt a platform because its traditional messages and its standard bearer’s impulses had little in common, even if we confine the discussion to bread-and-butter issues. (Balancing budgets? Promoting free trade?) And the competition came from a moderate who was almost no partisan Democrat’s first choice, just an acceptable second or third. All the ugly street scenes while the ballot counting was going on told more about each candidates’ followers than about the candidates themselves.

So now maybe it’s time for everyone to calm down and take a dispassionate look at what the future holds.

Despite what you might see on YouTube, the country might not be as divided as the common wisdom suggests. Trump picked up so many minority votes in Florida that he ended up winning the state handily; this is one indicator. So is the success met by women running on the Republican slate, suggesting that no one party can claim to speak for all American women. Republicans can take solace in holding the line in North Carolina, while Democrats get to crow about turning Georgia blue.

From this perspective, maybe McConnell might seize the moment and work with Democrats to pass bipartisan legislation. It would be out of character for him, but there’s always hope. Certainly, there’s a new stimulus bill to be crafted to give lifeblood to the entire U.S. economy, preferably with a significant infusion for the airline industry. And that’s hardly the only issue that for which the two sides could come to an agreement if they tried.

Grid, unlocked?

Speaking of the Peach State, its two senate races have both been kicked down the road to a January 5 runoff. While the Democrats had aspired to take control of the U.S. Senate this month, those hopes were dashed by hard-fought GOP wins. But if the Democrats take both these seats and a Vice President Kamala Harris is available to break ties, then the blue team will be in the leadership of the upper chamber.

This is a big “if”. But another tactic available to a President Biden would be to poach Republican senators to serve in his cabinet. If they accept, then their states’ governors pick their replacements until the next election. If those governors are Democrats, then they will most likely pick Democrats to serve in the Senate. This isn’t far-fetched at all. North Carolina’s Richard Burr, Pennsylvania’s Pat Toomey and Wisconsin’s Ron Johnson have all announced their intentions to retire after 2022. If Biden should make them an offer and they take the bait, their successors will be named by the Democrats living in their respective State Houses.

Of course, Biden doesn’t need the Senate immediately. He’d certainly like it, but there’s always 2022, when the Senate electoral map is much more favorable to his party.

So investors’ vision of gridlock from divided government might be the real “red mirage”. At this point, we traditionally remind you to consult a financial professional before rebalancing your portfolio or making any other decisions regarding your assets. But this time we further suggest that you make sure your advisor is as attuned to Pennsylvania Avenue as they are to Wall Street.