The Vantagepoint Market Perspective: The Road Ahead

10/28/2020

 

As we progress through the final week leading up to the presidential election, messages stressing the importance of voting pervade all forms of communications. Whichever direction the polls happen to be leaning on any particular day, the outcome of the 2016 election serves as a recent reminder that it is voting itself, and not the accuracy of the polls, that will presumably determine a winner.

With the nation’s eyes so firmly locked on the November 3, 2020 election, we’ve cast our gaze differently and have been considering what happens in the days and weeks that follow that crucial vote — no matter the electoral outcome.

Rather than opining on the prospects of which party will capture the presidency and/or control of Congress, we’d rather focus on a concern the markets may not really be considering: What happens if the results aren’t quickly determined and accepted in the days immediately following the election? 

For instance, the 2000 election — with its notorious hanging chads — saw disputes drag on for more than a month, with both sides digging in their heels and refusing to concede until the Supreme Court ultimately stopped the recount process. While Al Gore theoretically could have pursued other avenues at that point, he conceded the race to George W. Bush and ended any further challenges to Bush’s electoral claim to the presidency.

Fast forward 20 years to the current election and a raft of new uncertainties could make the 2000 electoral challenge in Florida look quaint. If one side will not concede the election, even in the face of a landslide, or if there are disputes about the veracity of mail-in ballots, the validity of signatures, the timing of those ballots, or a host of other disagreements, the prospect of multi-pronged litigation spanning multiple states could drag out the determination of a winner and spawn a constitutional crisis.

If one side or the other refuses to concede the race and declare the opposing party’s candidate the victor, there are risks of both social unrest and fiscal instability. In addition, a contested outcome could shift the legislative and media focus away from combatting the spread of COVID-19 and inject unneeded general uncertainty into the economic equation. Moreover, a contested outcome would almost certainly delay any efforts by Congress to come to an agreement on either a stimulus package or efforts to avert a December 11 government shutdown by hashing out a spending agreement.

We see no evidence that the market has priced in any of these scenarios. Rather, markets seem to be assuming a fast determination of the election results and a quick-to-follow agreement on some sort of a stimulus package. Market participants also continue to pin the market’s hopes on a rebounding economy that will find a magic cure in a soon-to-be approved vaccine.

However, questions remain about both the effectiveness of a potential vaccine and how quickly it can be distributed throughout the nation. Meanwhile, outside of the political arena, total new daily infection numbers are peaking and demonstrating that the virus is not yet under control. While some areas have enjoyed declining hospitalization and death rates compared to the peaks this spring, many other areas have seen a resurgence in hospitalization rates, further stretching health-care workers after an incredibly stressful year.

While we hope that the nation and its political parties can come to an agreement about the outcome of the election shortly after the ballots are counted, we caution that if that’s not the case it may put a variety of other aspects of our fledgling economic rebound in jeopardy.

Disclosures:

This information is intended for institutional use only and is not intended for individual investors or the general public. This article includes links to external websites. While we believe this information to be reliable, we cannot guarantee its complete accuracy.

Please note that this content was created as of the date indicated and reflects the authors’ opinions. These opinions are subject to change, without notice, due to market conditions or other factors.

This is not intended as a solicitation nor does it constitute investment, tax, or legal advice. Reference to any fund or asset class is not a recommendation to buy, sell, or hold that fund or asset class. Neither ICMA-RC nor its subsidiaries are responsible for any investment action taken as a result of the information provided herein or the interpretation of such information. Investors should carefully consider their own investment goals, risk tolerance, and liquidity needs before making an investment decision. Investing involves risk, including possible loss of the amount invested. Past performance is no guarantee of future results.

When Funds are marketed to institutional clients by our Investment Only (IO) team, the Funds are offered by ICMA-RC Services, LLC (RC Services), an SEC registered broker-dealer and FINRA member firm. RC Services is a wholly owned subsidiary of ICMA-RC and is an affiliate of VantageTrust Company, LLC and Vantagepoint Investment Advisers, LLC. Learn more at www.vantagepointfunds.org.      

Disclosures:

This website is for institutional use only and is not intended for individual investors or the general public.

This information is intended for institutional use only and is not intended for individual investors or the general public.

Please note that this content was created as of the date indicated and reflects the authors’ opinions. These opinions are subject to change, without notice, due to market conditions or other factors.
This is not intended as a solicitation nor does it constitute investment, tax, or legal advice. Reference to any fund or asset class is not a recommendation to buy, sell, or hold that fund or asset class. Neither ICMA-RC nor its subsidiaries are responsible for any investment action taken as a result of the information provided herein or the interpretation of such information. Investors should carefully consider their own investment goals, risk tolerance, and liquidity needs before making an investment decision.

When Funds are marketed to institutional clients by our Investment Only (IO) team, the Funds are offered by ICMA-RC Services, LLC (RC Services), an SEC registered broker-dealer and FINRA member firm. RC Services is a wholly-owned subsidiary of ICMA-RC and is an affiliate of VantageTrust Company, LLC and Vantagepoint Investment Advisers, LLC. Learn more at www.vantagepointfunds.org.