Shifting probabilities
With less than three weeks to go, this year’s campaign sea-son is finally drawing to a close amidst widespread voter fatigue. Unfor-tunately, the incendiary rhetoric has esca-lated to a level rarely seen in presidential campaigns, while the quality of the policy debate has deteriorated.
We believe the probability of a victory by Hillary Clinton in the November election has increased markedly in recent weeks. Concerns regarding her health have dis-sipated in the wake of unforced errors by Donald Trump. His vulgar comments re-garding unwelcome sexual contact with women over the years undermined ef-forts to broaden his political base and overshadowed the release of embarrass-ing e-mails from Hillary Clinton to her ad-visors. Barring the release of information that would disqualify Secretary Clinton from a national security perspective, we now believe that she will handily defeat Mr. Trump on 8 November.
No sweep
However, we do not expect that a Clin-ton victory will presage a Democratic sweep of Congress. Republicans have their largest majority in the House of Representatives since 1929. In order for the Democrats to control the House, they would need to win in almost all of the 30 or so competitive congressional districts. This would be a pretty tall task even with a stronger candidate at the top of the ticket. But with Secretary Clinton’s high unfavorable ratings and her inability to fully energize the coalition of millenni-als and minorities who swept President Obama into office, it’s likely that her “coattails” will be fairly short ones.
But it’s also important to note that there appears to be an impulse to “split-the-ticket” that is clearly reflected in a recent survey of voter preferences. In one poll, a majority of voters said that they would prefer a Republican Congress as a check on a Clinton Administration. This would presumably serve as a means of limiting any tendency to lurch further left after the election and suggests there will be less of a willingness to simply vote the straight party line on 8 November. So while we do expect the GOP to lose some seats in the House, the party can withstand significant losses before their practical control of the legislative agenda is threatened.
The outlook for the Senate is far less certain. Many races are still too close to call. Regardless of which party ekes out a majority, the upper chamber of Con-gress will be narrowly divided. Taken to-gether, we still believe the prospects for a divided government are exceptionally high. So despite recent speculation that Trump’s missteps could open the door for a Democratic “sweep,” we still see only a 10% probability that Democrats will gain control of both the executive and legis-lative branches following the November election. This view is largely validated by the election betting markets, which show an 83% probability of Republicans hold-ing the House.
The Gender Gap widens
While both candidates have ardent sup-porters, neither is highly regarded by a majority of the American electorate. Sec-retary Clinton is better positioned than Donald Trump, but as we alluded to ear-lier, recent polling data suggests that most voters still hold negative views of both individuals. According to the RCP average poll results, Clinton’s net favor-ability rating is -10; Trump’s is an extraor-dinary -26.
Clinton derives an advantage, at least on a relative basis, from a larger base of sup-port among female voters. According to the Pew Research Center, women have voted for Democratic presidential candi-dates at greater rates than men for the past 35 years. While the disparity in vot-ing preferences has varied over time, Pew reports that women are more likely to support the Democratic ticket by an aver-age margin of eight percentage points. And that ‘gender gap’ is poised to widen further in this election, to the detriment of the Republican candidate.
One recent poll, whose results were pub-lished in The Atlantic, showed a 33-point gap among likely female voters. The ab-sence of support for Mr. Trump was par-ticularly stark among women with college degrees. But even among women with-out a post-secondary education, he gar-ners no more support than does Hillary Clinton. The impact on this year’s election is also greater because women vote in greater numbers than do men. The pro-portion of eligible female voters who ac-tually turned up at the polls has exceeded the rate at which men vote by four per-centage points in the last two presiden-tial elections.
The impact is still limited
Despite market concerns of a Demo-cratic sweep, it remains our view that the two parties will still share power follow-ing the November elections. And as we discussed in recent editions of Election-Watch, that is not necessarily a bad thing for investors. Since there will be only a few policy areas where the two parties can find common ground, the prospects for abrupt policy shifts that would under-mine market stability are also limited.
For more information on how the scenar-ios in the table below could potentially impact asset classes and sectors, go to our ElectionWatch companion.
