Today the spotlight will focus on the United States with the first electoral debate between Donald Trump and Joe Biden and, although this will not be decisive in terms of the result on November 3, it will have its importance. The perception of who will be considered the winner of the debate will have an impact on the different sectors of the US stock exchanges, since Biden is perceived as more friendly to global trade (although his position towards China is not very different) and renewable energy companies, while Trump is perceived as positive for the hydrocarbon and defense sectors.
Who will be the winner in November 3? After the collective failure to predict Donald Trump’s victory in 2016, political pundits are more cautious this time. With around 50 days to go to the election, it is all still to play for, but Joe Biden leads in the polls in most of the swing states and should benefit from an expansion of mail-in voting. The vote might be followed by a period of uncertainty. First if the results are slow to be officially announced. Second, if Congress remains divided, with the risk of an untimely fiscal tightening.
The other two TV debates between Trump and Biden are scheduled for 15 and 22 October, and that between Mike Pence and Kamala Harris for 7 October. Bruno Cavalier, Chief Economist at ODDO BHF, points that there is often talk of an October “surprise” that could transform the race.
“With the incumbent president, it is hard to imagine any revelation that might bring the vast majority of the media to portray him in an even more negative light than they already do. “
To be (re-)elected, a candidate must secure a majority in the Electoral College, which comprises 538 members, split between the states proportional to their population. Winning a state secures all the electors for the victory. As explained by Cavalier:
“For historical or sociological reasons, many states always lean the same way. The result therefore hinges on the dozen or so swing states where the gap between the two sides is narrow and results in alternating victories between the Republicans and Democrats. This particular feature of the electoral system means that in practice winning the popular vote does not always lead to victory in the election.”
In 2016, Donald Trump won most of the swing states (see table). This gave him a bonus equivalent to 3 points of the popular vote, an unprecedented level, enough to largely outstrip his rival in terms of Electoral College electors (306 vs 232, a gap of 14%). History shows that a candidate can win even when this bonus benefits the opposing side (table 2).
Objectively, Donald Trump’s position looks worse than in 2016, but there is broad uncertainty as regards Congress. ODDO BHF’s report highlights that since the start of the 1990s, the House has always been taken by the party that took the White House.
“The outcome is much less clear-cut regarding the Senate. In 2020, 23 republican seats out of 53 are up for grabs (particularly in states which are republican leaning), with 12 out of 47 on the democrat side. If Joe Biden’s lead were to narrow even slightly, the Senate would continue with a republican majority. With a divided Congress, the legislative agenda of the future president, whoever he is, may be compromised. The most obvious risk is that partisan divisions could lead to a hasty tightening of fiscal policy. Moreover, we can see that in the last few weeks discussions on an extension to the CARES Act have made no progress.”