Investors Focus on Two Runoff Elections in Georgia
Electoral College members from each state will meet on December 14 to formally cast their votes for President and Vice President. On January 6, Congress will convene to count the Electoral College vote and certify the winner. However, the President-elect does not need to wait until formal certification of the election results to begin preparing to take office. During the eleven week transition period, the incoming administration will begin to appoint staff, outline the makeup of its cabinet, prioritize policy initiatives and so on. For that process to proceed unimpeded, the federal government’s General Services Administration must certify the election outcome to provide the incoming administration access to office space, federal agency briefing books, and funding to pay for the transition. So far, that certification has not yet occurred. The Trump administration has indicated its intention to pursue legal challenges to the results in Pennsylvania and Georgia, and to pursue a recount in Wisconsin.
The policy of the Associated Press is not to call the results of an election in a state that is, or might become, subject to a mandatory recount, which it appears could be the case in Georgia. In a state where a candidate can request a recount, such as Wisconsin, the AP will not declare a winner if the vote margin is 0.5 percent or less. The Biden margin of victory in Wisconsin is roughly 20,000 votes, or 0.6 percent. Wisconsin has undertaken recounts previously in the 2000, 2004, and 2016 presidential elections. In 2016, President Trump gained just 131 votes as a result of the recount. AP analysis of all statewide election results since 2000 showed that there have been 31 recounts, three of which changed the original outcome. However, the original margin of victory in those contests was just 137, 215, and 261 votes.
Election Season Extends as Two Runoffs in Georgia will Determine Control of the Senate
The makeup of the Senate remains an open question since the two seats in Georgia, currently occupied by Republicans, will be determined by a runoff election on January 5. Right now, the party affiliation of the Senate, assuming the Alaska and North Carolina seats remain Republican once those races are called, is 50 Republican, 48 Democrat. The Democratic party would need to win both Georgia seats to create a split, giving the Vice President the tiebreaking vote. Should that happen, the policy implications for a Biden administration would change dramatically compared to a situation where Republicans controlled the Senate.
Although the results of several races remain uncalled, the House appears likely to remain Democratic, but with a narrower majority. Prior to the election, Democrats held 232 seats versus 197 for Republicans. There was one Libertarian Party member and there were five open seats. A majority requires 218 seats. Republicans have already gained seven seats, with that gain possibly rising to a pick-up of twelve seats.
Should the federal government end this election cycle with a Democrat in the White House, a Republican controlled Senate, and Democrat controlled House, it would be a rare occurrence indeed, having happened only once before in 1885.
Investors Should Remain Focused on Long-term Goals
Investors are often said to prefer a divided government as it lessens the likelihood of significant policy change. But this year, the runoff Senate elections in Georgia make the final determination of that uncertain. That, in turn, makes it impossible for investors to anticipate whether a new administration might be able to enact possibly significant changes to the tax code, spending priorities, trade policy, and so on, and what the implications might be for their portfolios.
The last thing that anyone should do is make changes to their investments under the anticipation of a particular outcome, only to have to undo those changes two months later. So, for the next sixty days, all eyes will be on those two contests in Georgia, which may determine the course of policy for the next four years.
Sources: Factset, Bloomberg. FactSet and Bloomberg are independent investment research companies that compile and provide financial data and analytics to firms and investment professionals such as Ameriprise Financial and its analysts. They are not affiliated with Ameriprise Financial, Inc.
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