Why this election matters

We are only a few days away from a general election that will determine not only the next occupant of the Oval Office and the membership ranks within both houses of congress, but also the composition of state houses, legislatures, town councils and countless other municipal posts across the country. The Center for Responsible Politics estimates that the 2020 election will be the most expensive in history with nearly $11 billion in total campaign related expenditures, when all is said and done. Meanwhile, the Pew Research Center projects that turnout for this election will shatter previous records with more than 150 million likely to cast ballots by next Tuesday. So, what is it about this election that has generated so much interest and why does it matter for financial markets?

When I first pondered that question, I was obviously drawn to the daunting set of challenges that will confront our elected officials come January.

Keep in mind that this election takes place amid a pandemic that has already claimed 1.2 million souls globally and shows few signs of abating. Meanwhile, the U.S. is still struggling to recover from the biggest macroeconomic shock since the Great Depression and is contending with the most serious social unrest in a generation. The U.S. is also faced with a pretty dismal fiscal outlook. According the Congressional Budget Office, the 2020 budget deficit totaled a record $3.1 trillion and the debt-to-GDP ratio has now risen to a level not seen since the Second World War. Finally, the U.S.’s standing in the world and its primacy as a global leader is being openly questioned and even challenged by both adversaries and allies alike.

I also reflected upon the fact that the U.S. electorate has rarely been so deeply divided.

The impact of the pandemic, economic recession and social upheaval has only added to the overall sense of anxiety and general disaffection with the current state of public affairs. At the same time, the proliferation of media sources means that the voting public is now largely able to self-select the content they wish to consume. Those same preferences are then preyed upon by social media outlets that utilize sophisticated algorithms to offer up material that is designed to both validate a user’s pre-defined world view and demonize any opposing viewpoints. This serves as something of an echo chamber that enflames passions and further exacerbates political polarization.

But while this may well help to explain why this election has generated so much interest and why the body politic feels so passionately about political outcomes, it still doesn’t address the reason that this election is so important for financial markets.

To answer that question, I needed to dig a little deeper and think a bit more broadly about the nature of our system. The United States is the world’s longest-standing continuous democracy – and arguably also the most important. It has served as the template for democratic movements across the globe for generations and remains the standard by which all others are invariably measured. So, this election – as with every one that has preceded it and all that will follow – represents an affirmation of our commitment to the democratic process and the peaceful transfer of civilian government leadership.

What does any of this have to do with markets?

Keep in mind that our willingness to freely submit to the rule of law, insure the fair adjudication of disputes and the honoring of private property rights represents the very foundation upon which our entire economic system is built. This has created an ecosystem that has enabled free markets to flourish, permitted entrepreneurs to take the risks essential for innovation and allowed private wealth to accumulate without the threat of indiscriminate seizure. Each and every election therefore represents an opportunity to reaffirm our commitment to these core principles.

Certain policies may be viewed more favorably by market participants while others may be viewed less favorably, so the results of each election will of course still matter. COVID-19 responses, fiscal spending programs, criminal justice reforms, tax policies and the handling of trade disputes will each impact different markets to varying degrees. Yet businesses will learn to adapt, and markets will eventually adjust regardless of the electoral outcome. So, what matters most is not whether or not one candidate wins, or even if a single party comes to dominate, it’s rather that the integrity of the process that has allowed this free market system to flourish is not in any way compromised. In short, it’s about the process and not about the outcome.

And that’s why this election is so important for markets.

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