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US Election: Every vote counts (and has to be counted)

When will we know who is to guide America through the next four years? The last US polls will close early tomorrow morning (in Alaska at 6:00am GMT). In 2016, Donald Trump was declared winner by 7:30am GMT, but this time could be different.

The US president is elected by winning enough US states. Each state has a number of “electoral votes” depending largely on its population (though every state has a minimum of three). To win the presidency, 270 electoral votes are needed.

Some states are hugely influential, due to their size and the number of electoral votes up for grabs. A candidate can win the popular vote yet still not win the presidency, if they can’t get enough electoral votes to get over the line. Hillary Clinton managed that in 2016 and, in an even tighter contest, Al Gore was defeated by George W Bush in 2000, after Bush won Florida (and its 29 electoral votes) by only 537 votes. It took a Supreme Court decision to end the recount before a mid-December deadline.

Mail-in voting (postal voting) in the US began in the 1860s on Civil War battlefields, to allow soldiers away from home to vote for Lincoln or McClellan in the 1864 election. Five states now hold elections almost entirely by mail. Absentee ballots, for those physically unable to vote in person, are available in all 50 states, but some require a valid reason such as illness or temporarily living outside the state. This year, coronavirus is an acceptable reason in 34 states. In fact, this pandemic has resulted in a changed landscape for the 2020 US presidential election. One analysis estimates that 75% of American voters will be eligible for a postal vote, the most in US history, potentially resulting in double the number of mail-in ballots than in 2016.

Research shows that postal voting increases voter turnout. But postal votes take longer to process and count, which could potentially delay the result of this election.

It should be a record turnout in 2020. Michael McDonald, a professor at the University of Florida, manages the US Elections Project. His analysis counts almost 100 million early votes, including 64 million postal votes, already received prior to polling day. This is more than 70% of the total votes received in 2016 indicating that 2020 is likely to be a record for voter turnout and a record for postal votes.

In 2016, the US experienced a 1% rejection rate of its postal votes across all ballots, including the presidential election. If there’s an increase in both mail-in voting and rejection rates, there could be more than a million votes uncounted. This could be significant, as it was in Florida in 2000 when the word “chad” with a range of descriptive adjectives entered our lexicons. The ballots where the chad (the piece of paper taken out by the voting machine that punches the ballots) wasn’t fully punched out remained uncounted, and Bush won by the smallest of margins.

If this race is tight, it could be some days before either Trump or Biden are confirmed as the next US President. Some states begin processing postal votes prior to election day – Florida began its vote processing on 24th September though won’t count until election day, whereas Texas started its count on 30th October. Some states allow mail ballots to arrive after election day and still be counted. Ohio is happy to count ballots that arrive as late as 13th November. Pennsylvania is expected to be a crucial state this year with its 20 electoral votes, and its fairly even Democrat vs Republican support. This state will not process or count votes until election day itself, with the count expected to finish by 6th November, the last day for mailed ballots to arrive.

If this election goes to the wire, it might be Friday at the earliest before we know the winner.

The battle for the Senate is also taking place. There are 35 seats up for re-election. The Republicans currently have a majority 53-47. This is a race as important as the Presidential election, in terms of the potential impact of the next White House incumbent.

If Biden Wins?

Biden is the pollster’s favourite but polls have been wrong before. If he gets in, and manages to get Trump to move out, he is likely to need the Democrats to control the Senate in order to enact tax and spending legislation. Biden is expected to raise taxes on high earners and increase public spending. His focus is on key issues such as healthcare and climate change so expect green infrastructure spending.

If Trump Wins?

With a slumping economy it is hard to see a way for Trump to win, as people rarely vote for a status-quo that isn’t working for them. However, Trump shouldn’t be written off and his supporters are more likely to be on-the-day voters whereas many Democrats vote early. Trump hasn’t been too clear on what his strategy would be for the next four years, but we expect big spending plans too. Trump will also likely need the Senate to be in Republican control to push through big spending policies.

Closing on the markets

Overall, the optimum economic outcome is likely to be an alignment of Senate and Presidency, which could well be positive for the US dollar and also for the broad equity markets.

A contested election (for example if Trump refuses to accept a Biden win, or the vote is incredibly close resulting in legal battles) will mean increased market volatility and a difficult economic outlook for the US.

A misalignment of Senate and Presidency is likely to bring inaction in many segments of the economy, as legislation fails to get sufficient support.

Courtiers maintains exposure to US equities in its globally diverse portfolios. We’re watching closely and will provide an update when the outcome’s clear. In the meantime, any market volatility may bring further investment opportunities.

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