US Elections: What to Watch From Now to Inauguration Day
Following the US elections, we continue to monitor the post-election political landscape, especially in the context of the incumbent refusing to accept the popular verdict and the control of the US Senate still not being a foregone conclusion.
Expectations continue to coalesce toward a split government – one with a Biden presidency, a reduced Democratic majority in the House and, as of now, a Republican-controlled Senate. Investors reacted favorably, appreciating that the election process took place without major incidents and presuming that the lack of a “blue wave” meant that big-ticket Federal spending and an overhaul of tax policies were unlikely. We agree and are also watching several subsequent developments that could trigger revised expectations and potential market volatility.
Legal Challenges Won’t Overturn the Result
The most effective legal strategies take place prior to vote tabulation. Once votes are tallied, it is exceedingly rare to have courts overrule the result unless there is evidence of systemic failure or wrongdoing. Thus far, none of the legal submissions seem to carry credible evidence and are therefore likely to fail.
Similarly, statewide recounts typically average vote changes in the triple digits, with 440 votes being the largest recount that flipped a Senate seat (Minnesota in 2008). No state-wide recount has ever overturned a five-digit margin, which is what separates Joe Biden from Donald Trump in three states needed to change the overall outcome.
Nonetheless, President Trump’s approach to the election outcome matters in the short term. First, his actions could still deliver downside risks to the transition period in terms of a policy surprise. Second, he was successful in boosting Republican turnout at the polls, helping his party retain or even gain seats in most federal- and state-level bodies. Hence, he could influence the outcome of the Georgia Senate runoffs 1.
Georgia Run-offs Matter to Limit Tiebreakers in the Senate
Republicans have historically outperformed in the runoffs and have widened their margins in each of the statewide run-off elections since 2006 (Figure 1). While the margin is getting tighter, they still added an average of 2.4% margin in the runoffs two years ago and is expected to do so this time around as well. They also just need to win one of the two Senate races that are slated to happen in Georgia in January 2021 to retain Senate control.