Markets Breathe a Little Easier in Aftermath of Election

US Elections & Markets

The sky was supposed to fall on the stock market with a looming Democrat sweep, but it didn’t come crashing down as predicted, and the market breathed a sigh of relief.

As the aftershocks of the 2020 election continue to reverberate, for those who are rooting for the stock market, it could have been worse. It could have been a lot worse in fact, and the reason why we have spoken about the specter of a Democratic sweep so often and so strongly is because war would be declared on our stocks.

This is not just about stepping aside from a bear, and that part is easy enough to do even though so many allow themselves to be sucked into such whirlpools, even ones so well telegraphed. When the country gets turned over to a party that has now devolved into being enemies of capitalism, capitalists have much to fear.

The thought of this happening actually should have made us shudder as investors, yet according to the polls at least, more investors were supporting the anti-investor candidate than perhaps the biggest champion of the market of all time. Facing the prospect of being hit by a bat, they cried “batter up.”

The market does whatever it wants, and can choose to just keep bidding up stocks all it wants, no matter what happens. We could get a recession, yet people could just keep buying stocks and watch their wealth grow, ignoring whatever might be going on, even seeing your country taken over by radical socialists who hate shareholders.

We saw this happen with the current recession, and in the end, once the market got back on its feet after getting knocked down initially by COVID, you would never know that we are in a pandemic or a recession that is all too real and painful. You’d never know our economy is still being intentionally choked to a degree that should scare shareholders plenty, if they bothered to care.

The market could ignore anything in theory, but the reality is that there is a threshold here, a point where the concern becomes so pointed that the market can longer ignore it.

It is not that Joe Biden would be all that much of a threat by himself. Presidents play an important role in the administration of the country, but they don’t have the power to make or change laws. If Biden wins, which is very much up in the air now, he could do plenty of damage but comparable to small arms fire compared to the ballistic missile of a blue sweep.

With control of all three, the concept of checks and balances that is such a big part of the philosophy of the American Republic would simply be absent. This was seen as an acceptable risk to the framers of the Constitution, but they could not imagine how radical one of our parties may one day have become and their using this power to fundamentally transform the nation in ways well beyond what was previously acceptable.

The polls looked grim, and the only hope that remained was that the polling community in general did not learn their lesson the last time around, when they predicted that Donald Trump would get run over just to see him prove them massively wrong and win the presidency. The word was that they made the necessary adjustments to prevent this, but had they?

We still had Trafalgar, the polling company that correctly predicted the election last time, right down to predicting states far more accurately than the pollster mob, predicting a very close race this time. They had Biden up by 1 when others forecasted a double digit edge for him. They had Trump ahead in states like Florida, Texas, and Ohio, and much closer in other key states like Wisconsin, Michigan, and Pennsylvania than the crowd did.

The main view was that this was going to be a landslide, with only one thing saving Republicans from getting run over by the blue wave, and it came down to needing to have Trafalgar right again and the pollster crowd very wrong again. Trafalgar used the same methodology, where the consensus, the majority of them being run by left-leaning media outlets, was strongly suspected of using methods that dampen Republican support.

The Crowd Underestimates Trump Once Again

It turns out that Trafalgar figured out that Republicans, and Trump supporters in particular, were less likely to respond to typical polling methods, or respond to polls in general. Trafalgar and the other pollsters who understood this devised their methods to reduce this bias and provide a truer sample.

The results are now in, sort of anyway. In day three of the election, things remain to be completely decided, although when we account for the states that Biden has won or is ahead in, this takes him to exactly 270. This is nothing like the landslide they called for.

The presidency will almost certainly be decided in the courts. Getting whipped would not have provided Trump any hope, as you can only change the results by so much when you challenge them and win, like what happened in the 2000 election. When it’s this close though, and when the accusations of impropriety are so prominent, that’s another story.

Among the issues is the Supreme Court of Pennsylvania’s decision to make their own voting rules, as they are not entitled to make laws, only interpret and apply them. Only legislatures can create voting laws, and the Republicans are already working on getting this overturned, which may affect the result.

It turns out that filling the vacant Supreme Court seat to avoid the potential for a tie was a wise move and more important than many realized. The Republicans have remained confident that they would be very competitive though, enough for this to matter, and it turned out that this was more than just posturing.

This could have been done after the election, in the lame duck session, but we see now why getting it done before the election was so important. It’s not that this election being contested is any big surprise, but having things so close that the courts will now decide it on their own one way or another is another matter.

It was pretty clear that the race may not have been one sided, for those who just didn’t look at the popular polls and also looked at what are considered to be “outliers” by the majority of pollsters. Still though, the prospects of a Democratic sweep was still very much in the game, and if we do survive this, and there is now a very good chance of this, it will be by the skin of our teeth.

The Fort May Not Be Taken After All

The chance of the Republicans holding the Senate and providing a means to block radicals on the other side from passing the most hideous of legislation that has ever been proposed in this country was also at risk. We knew this would be close, but the odds did favor the Democrats, with the only real hope being that the turnout overall for Republicans would be high enough.

The balance of power in the Senate hasn’t been decided yet, but has Trump has performed better than expected, several key races in the Senate went better than expected as well, enough to likely turn the tide.

The Trump effect may have been in play in the polling, to a lesser degree, in the Senate races as well, especially since the Republicans have such a big number of their supporters living in rural areas and less willing to complete lengthy phone surveys, or even to pick up the phone in the first place.

Should the Democrats prevail by way of the vote count, there is still hope that whatever ballots may be rejected by way of Trump’s litigation would also change the count for Senate races. This has particular potential in Michigan, where the Republican candidate had a lead that looked like it would stand but got hammered by mail-in ballots counted the next day, as Trump did in the state.

We knew that mail-in ballots were sent in by more Democrats than Republicans, but the Republicans are rightly troubled by the pitifully small percentage of these votes, and there was even a batch of over 20,000 ballots where every single vote was for Biden. This could never happen naturally.

The Supreme Court does not play the role of election board, but they can have plenty to say in elections by way that they interpret the law to include certain votes or not. This is the backstop of the judiciary, where you can go no higher and whose decisions prevail until they change their mind in another decision.

The hope though is that the Senate can be maintained through natural means, by way of the raw vote count that is now wrapping up. This would serve to save investors from a great deal of pain, regardless of who gets to live in the White House for the next four years.

Make no mistake, Joe Biden will have plenty of ammunition to rattle the markets. He can issue various directives but a lot of the things he’s promised could be blocked by the Senate. This is especially important given that the party agenda is set by the party, where the President at best courts influence, and Joe’s influence will definitely be on the muted side, if considered at all. They will give him his script on the teleprompter and he will read it, for as long as he is still able that is, and that will be his role.

Just like kids used to burn their books at the end of the school year, celebrating being free of school for a while, a Senate victory for the Republicans can have us burning all those dreadful ideas that the Democrats have planned if given the opportunity.

A Republican Senate wouldn’t be as fond of raising corporate taxes back up as Joe wants, one of this planks in his Build Back Better plan. He won’t be raising taxes at all in fact as only Congress can do this and they have to partner up. Ditto for getting rid of the capital gains tax, Bidencare, wealth taxes, and getting rid of shareholder capitalism with the government seizing a stake as Sanders wants to do.

We’ll also be rid of Biden’s plan to get rid fossil fuels, spend much more than the country can afford on his climate plan, see the country overrun with immigrants by opening up borders, as well as his ideas of his shutting down the country or ordering national mask mandates, although these last two were only fantasy, when he would bob between remembering this and forgetting it.

The list here is a long one actually, the whole Democratic wish list to Santa, but unless they have the Senate as well, Santa will not be paying them a visit. This is not absolution by any means, and is more like being convicted of a misdemeanor when you were facing the electric chair.

The market rallied when the results first coming in, at a time where there was considerable uncertainty to say the least. Elections are very tricky as far as their effect on the market at the best of times, for instance in the way that it sold off after the 2016 election, until the market came to its senses.

The results aren’t ideal for the market but they sure are a lot better than things could have turned out, turning over rule of the country to a party so decidedly biased against the market. The tabulating still needs to play out, and there is still a real risk of things going south, but things look reasonably comfortable.

Both parties have 48, with 4 races outstanding. One of the two Georgia seats will need a run-off, but as things stand, the score would be 52-48. So, the Republicans could lose one of the two seats that aren’t subject to a run-off, which would remain in Republican hands for now regardless, and one of those races is in Alaska, which they are strongly favored to win.

It seems that nothing short of tampering will have the Republicans shut out, but in this election, just about anything seems possible, and we can’t relax until all the votes are counted. This is real good news for the market though, and far better than the grim alternative we’ve been pondering for so long.

John Miller

Editor, MarketReview.com

John’s sensible advice on all matters related to personal finance will have you examining your own life and tweaking it to achieve your financial goals better.

Contact John: john@marketreview.com

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