SPY: What Investors Need to Know About the Most Important Election Races of 2020

For months many investors feared that the results of the most dramatic and high-stakes election in decades could cause chaos on Wall Street.

Despite the numerous doomsday prophecies about how a contested election could send stocks crashing, the S&P 500 has actually rallied over 7% since the November 3rd election. The Dow has rallied even more, up almost 9%. Of course, President Trump still refuses to concede the race and vows to fight on for as long as it takes to ultimately be declared the victor. In other words, according to our current president, and tens of millions of his most ardent supporters, the election is far from over. That’s actually 100% correct, but not for the reasons many think. The reality is that the 2020 election is not over, and the two most important races have yet to be decided. Read on to discover why the thing that most people are hyper-focused on, the Presidential race, is not the most important race of 2020. Most importantly, find out which two races, which will be decided in the coming weeks, will truly determine who controls the government for the next two years. That means the fate of trillions of dollars of stimulus, taxes, and regulations are still up for grab, which could have important implications for stocks over the coming months.

The Presidential Race Is Over… BUT

(Source: NYT)

In 2016, Donald Trump beat Hillary Clinton 306 electoral votes to 232, due to winning a handful of Great Lakes states by less than 100,000 votes. In 2020, Joe Biden beat Donald Trump 306 electoral votes to 232 due to winning a handful of key swing states by a few hundred thousand votes.

(Source: NYT)

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Fears of widespread fraud have been thoroughly debunked by the Cybersecurity and Infrastructure Security Agency (CISA), which oversees US elections,

“The members of Election Infrastructure Government Coordinating Council (GCC) Executive Committee – Cybersecurity and Infrastructure Security Agency (CISA) Assistant Director Bob Kolasky, U.S. Election Assistance Commission Chair Benjamin Hovland, National Association of Secretaries of State (NASS) President Maggie Toulouse Oliver, National Association of State Election Directors (NASED) President Lori Augino, and Escambia County (Florida) Supervisor of Elections David Stafford – and the members of the Election Infrastructure Sector Coordinating Council (SCC) – Chair Brian Hancock (Unisyn Voting Solutions), Vice Chair Sam Derheimer (Hart InterCivic), Chris Wlaschin (Election Systems & Software), Ericka Haas (Electronic Registration Information Center), and Maria Bianchi (Democracy Works) – released the following statement:

“The November 3rd election was the most secure in American history. Right now, across the country, election officials are reviewing and double checking the entire election process prior to finalizing the result.

“When states have close elections, many will recount ballots. All of the states with close results in the 2020 presidential race have paper records of each vote, allowing the ability to go back and count each ballot if necessary. This is an added benefit for security and resilience. This process allows for the identification and correction of any mistakes or errors. There is no evidence that any voting system deleted or lost votes, changed votes, or was in any way compromised.

“Other security measures like pre-election testing, state certification of voting equipment, and the U.S. Election Assistance Commission’s (EAC) certification of voting equipment help to build additional confidence in the voting systems used in 2020.

“While we know there are many unfounded claims and opportunities for misinformation about the process of our elections, we can assure you we have the utmost confidence in the security and integrity of our elections, and you should too. When you have questions, turn to elections officials as trusted voices as they administer elections.” – CISA (emphasis original)

The numerous lawsuits filed by Trump have been thrown out by judges, including those appointed by Trump himself as well as G.W. Bush, on the basis of lack of evidence. The lack of fraud isn’t surprising since actual voter fraud is incredibly rare.

In 2014, Loyola Law School professor and voting expert Justin Levitt investigated every general, primary, special and municipal election held since the year 2000. Of more than 1 billion ballots cast, he found just 31 credible instances of potential voter impersonation, which is one of a few ways that cheating can actually occur.” – Yahoo

The actual cases of voter fraud amount to 1 in 32.3 million US ballots cast from 2000 to 2014. Claims that voter fraud is rampant in the US are simply not supported by the actual facts. This is why the FBI director, a Trump appointee, recently told a Senate hearing that there are no historical cases of widespread voter fraud conspiracies. FBI Director Christopher Wray testified to Congress on Thursday that the agency has not historically seen “any kind of coordinated national voter fraud effort in a major election,” including through mail-in voting.” – Forbes The two recounts currently going on, Wisconsin and Georgia, have virtually no chance of overturning the results in those states, nor giving Trump the win. That’s according to not just political scholars, but Karl Rove, chief Republican strategies for G.W. Bush. Why?

Recounts typically don’t swing enough votes to change the winner. Out of 4,687 statewide general elections between 2000 and 2015, just 27 were followed by recounts, according to data compiled by FairVote, a nonpartisan group that researches elections and promotes electoral reform. Just three of those 27 recounts resulted in a change in the outcome, all leading to wins for Democrats… The mean swing between the top two candidates in the 27 recounts was 282 votes, with a median of 219. The biggest swing came in Florida’s 2000 presidential election recount, when Al Gore cut 1,247 votes off George W. Bush’s lead, ultimately not enough to flip the state to his column.” – FiveThirtyEight

The margins Trump lost by are 8+X larger than the largest vote swing in US recount history. But what’s happening in Georgia right now does matter, and it matters a lot.

…The 2 Most Important Races In 2020 Have Nothing To Do With Trump Or Biden

(Source: NYT)

Democrats were hoping to take control of the Senate by flipping at least four seats, and thus far they’ve flipped two. The GOP is likely to retain the Senate UNLESS they can win the two Georgia Senate races.

GA became a purple swing state in 2020 meaning this is the last election battleground of 2020
these are the two most critical elections of this election season

All presidential candidates promise huge reforms while campaigning.

Trump promised to create 10 million jobs in 10 months by forcing US companies to bring back jobs from China
Biden promised to make America carbon neutral by 2050 and make all new cars sold after 2035 electric

These are just two examples of the kind of wild promises that candidates make to win votes. But without control of Congress, very few major reforms actually happen. In Georgia, Biden appears to have won by a very narrow margin, becoming the first Democrat to carry the Peach state since Bill Clinton in 1992. The polls in GA, which showed a virtually tied race, were right on the money. Due to no candidate getting the required 50% + vote to win outright, both GA senate seats will be decided during the January 5th runoff.

Here’s Whose Most Likely To Win The Most Important Races of The Most Dramatic Election Season In Modern History

(Source: Real Clear Politics)

Republican polling firm Remington Research is the only one to have conducted a poll since the election and finds both races are within the 4% margin of error. The GOP theoretically has the edge in this race for several reasons.

the Democrats haven’t won a GA Senate Runoff since 2000
turnout during GA runoffs historically falls 40% on average (Biden squeaked out a win in GA due to record turnout)

However, there are several factors that make this GA Senate Runoff potentially a far closer race than most.

this is the first time that the outcome of a GA runoff will decide control of the Federal government
trillions of dollars of potential stimulus, taxes, and regulations will hinge on the outcome of this race
the most popular members of both parties, including both Obamas, are planning on campaigning hard in GA in the coming weeks
tens of millions of dollars will pour into GA as both sides turn this nationalized state race into a media circus
turnout may be affected by the pandemic which is expected to peak in severity around January 1st, days before the runoff

Political experts agree that GA’s runoff races are almost always decided purely by the bases of both parties. Thus enthusiasm matters most, and it will likely come down to who wants it more.

Democrats, who have a taste of victory AND defeat (they did terribly in the House) and who have a chance to pass a much bigger stimulus bill through reconciliation only if they win both races
Republicans, who are smarting from a defeat for the White House, BUT who did far better than expected in Congressional races (they appear to have won 11 net House seats)

Ultimately we won’t know the answers to these critical political questions for a few more weeks. In part two of this series, I’ll tell you exactly what the outcome of the two most important races of 2020’s historic campaign season will likely mean for the economy, stock market, and your portfolio.

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SPY shares were trading at $361.09 per share on Wednesday morning, up $0.47 (+0.13%). Year-to-date, SPY has gained 13.80%, versus a % rise in the benchmark S&P 500 index during the same period.

About the Author: Adam Galas

Adam has spent years as a writer for The Motley Fool, Simply Safe Dividends, Seeking Alpha, and Dividend Sensei. His goal is to help people learn how to harness the power of dividend growth investing. Learn more about Adam’s background, along with links to his most recent articles. More...