Election uncertainty looks increasingly certain
Reagan Anderson
Senior VP, Government Relations
John Emerson
Vice Chair, Capital Group International

Remember all the turmoil over those hanging chads in Florida? The 2020 U.S. presidential election could make that dispute look quaint by comparison. In a year when seemingly everything has gone wrong, it is highly likely that Election Day will add another element of uncertainty to a most uncertain time.

“I've been involved in presidential politics going back to the 1980s, and I have to say this is the most unusual election of my lifetime — and probably anyone’s lifetime who is alive today,” says John Emerson, Vice Chairman of Capital Group International, Inc.SM and a former U.S. Ambassador to Germany.

“We have a pandemic, an economic crisis, civil unrest in the streets and, in the middle of it all,” he adds, “a dispute over a Supreme Court appointment suddenly enters the mix.” The Senate Judiciary Committee is expected to begin confirmation hearings on October 12 for President Donald Trump’s nominee, setting the stage for a partisan battle three weeks before the election.

Adding yet another layer of uncertainty: Last week President Trump and his wife, Melania, tested positive for COVID-19. It remains to be seen how that could impact the campaign but, at a minimum, it places the pandemic back at the centre of the race. “Of course, our thoughts are with the President and First Lady wishing them a speedy recovery,” Emerson says.

Uncertainty index is elevated and far higher than previous election cycles

To put things in perspective, the U.S. Economic Policy Uncertainty Index — which tracks a mix of economic, policy and media-related uncertainty measurements — has hit unprecedented levels in 2020. Investors may be wondering: What could possibly come next?

Mail-in ballots may trigger Election Day turmoil

Instead of hanging chads — which got the spotlight in the 2000 election — mail-in ballots could be the central issue this time.

Largely due to the COVID-19 outbreak, a record 80 million Americans are expected to vote by mail in this election cycle rather than visit the polls in person. That means election officials will be processing more than twice as many postal ballots as they did during the last presidential campaign in 2016.

Unless it’s a clear landslide for President Trump or former Vice President Joe Biden, “the outcome of the presidential election probably won’t be known for days or even weeks,” Emerson says, as states deal with the unprecedented volume of postal ballots. High levels of market volatility would likely accompany this period of uncertainty, he adds.

Moreover, Democrats are requesting mail-in ballots in much higher numbers than Republicans. This could set up a scenario where Election Day results appear to favour Republicans and then mail-in ballots — which take longer to count — shift the outcome toward Democrats. Either way, court challenges are a predictable outcome.

More Democrats than Republicans are voting by mail

Expect the counting to continue well past Election Day

Some U.S. states don’t start counting mail-in ballots until Election Day. A few of them are key swing states where the presidential election could be decided, including Michigan, Pennsylvania and Wisconsin. By contrast, other swing states such as Arizona and Florida start tallying mail-in ballots two weeks and three weeks ahead of time, respectively, as the ballots are received.

In recent months the subject of mail-in balloting has become highly politicized. However, putting those partisan arguments aside, the simple fact remains that many states have never before handled such a high volume of postal ballots. Under the best circumstances, it will be a challenge to count the votes in a timely manner.

“We have to be patient,” says Reagan Anderson, a Senior Vice President with Capital Group’s government relations team. “Just because it takes longer to count the votes doesn’t mean there’s fraud involved. We may have to wait a while to ensure we get an accurate count so the American people can trust the validity of the results.”

A state-by-state map for Election Day confusion 

Will the U.S. Supreme Court step in again?

The disputed 2000 election was ultimately decided 36 days later when the U.S. Supreme Court, in a 5-to-4 vote, effectively ended recounting efforts in Florida. A key element of the decision involved a strict deadline: Under federal law, each state must determine its electors six days before the Electoral College meets.

That deadline was December 12, 2000 — an impossible task to meet if recounts were permitted to continue in Florida. The court handed down its decision that same day, and former Vice President Al Gore conceded the next day. In the closest election in U.S. history, President George W. Bush won with 271 electoral votes, one more than he needed.

Could the Supreme Court be called upon again? And will that deadline — this year it’s December 8 — play a similar role? Only time will tell.

“At the end of the day, I think it's important to keep in mind we will have a result,” Emerson stresses. “We will have a president, and I believe we will have a peaceful transition of power.”

For long-term investors, it’s important to remember that, historically speaking, the political power structure in Washington, D.C., hasn’t had much of a discernible impact on equity market returns. From 1933 to 2019, under unified and split governments, the average annual return for the Standard & Poor’s 500 Composite Index has fallen into a broad range from roughly 7% to 10%. A split Congress, as we have today, appears to be the market’s favourite choice, having generated an average return of 10.4%.

For more on this topic, read our Guide to investing in an election year

Investment implications:

  • Investors should prepare for rising market volatility as Election Day approaches.
  • Patience is key, as the outcome of the U.S. presidential race may not be known for days or weeks.
  • The sheer volume of mail-in ballots means delayed results are probably inevitable.
  • Despite the uncertainty, investors should remember that markets have eventually moved higher even in turbulent times.

Reagan Anderson is a senior vice president of government & regulatory affairs with 23 years of investment industry experience (as of 12/31/2023). She holds a bachelor's degree in journalism from Ohio University.

John Emerson is vice chair of Capital Group International, Inc. and has been with Capital Group since 2000. He was the U.S. Ambassador to Germany from 2013 to 2017. Prior to that, he was president of Capital Group Private Client Services.

Commissions, trailing commissions, management fees and expenses all may be associated with investments in investment funds. Please read the prospectus before investing. Investment funds are not guaranteed or covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. For investment funds other than money market funds, their values change frequently. For money market funds, there can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Past performance may not be repeated.

Unless otherwise indicated, the investment professionals featured do not manage Capital Group‘s Canadian mutual funds.

References to particular companies or securities, if any, are included for informational or illustrative purposes only and should not be considered as an endorsement by Capital Group. Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any investment funds or current holdings of any investment funds. These views should not be considered as investment advice nor should they be considered a recommendation to buy or sell.

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and not be comprehensive or to provide advice. For informational purposes only; not intended to provide tax, legal or financial advice. We assume no liability for any inaccurate, delayed or incomplete information, nor for any actions taken in reliance thereon. The information contained herein has been supplied without verification by us and may be subject to change. Capital Group funds are available in Canada through registered dealers. For more information, please consult your financial and tax advisors for your individual situation.

Forward-looking statements are not guarantees of future performance, and actual events and results could differ materially from those expressed or implied in any forward-looking statements made herein. We encourage you to consider these and other factors carefully before making any investment decisions and we urge you to avoid placing undue reliance on forward-looking statements.

The S&P 500 Composite Index (“Index”) is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Capital Group. Copyright © 2024 S&P Dow Jones Indices LLC, a division of S&P Global, and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC.

FTSE source: London Stock Exchange Group plc and its group undertakings (collectively, the "LSE Group"). © LSE Group 2024. FTSE Russell is a trading name of certain of the LSE Group companies. "FTSE®" is a trade mark of the relevant LSE Group companies and is used by any other LSE Group company under licence. All rights in the FTSE Russell indices or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indices or data and no party may rely on any indices or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company's express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication. The index is unmanaged and cannot be invested in directly.

BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). Bloomberg or Bloomberg’s licensors own all proprietary rights in the Bloomberg Indices. Neither Bloomberg nor Bloomberg’s licensors approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

MSCI does not approve, review or produce reports published on this site, makes no express or implied warranties or representations and is not liable whatsoever for any data represented. You may not redistribute MSCI data or use it as a basis for other indices or investment products.

Capital believes the software and information from FactSet to be reliable. However, Capital cannot be responsible for inaccuracies, incomplete information or updating of the information furnished by FactSet. The information provided in this report is meant to give you an approximate account of the fund/manager's characteristics for the specified date. This information is not indicative of future Capital investment decisions and is not used as part of our investment decision-making process.

Indices are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment.

All Capital Group trademarks are owned by The Capital Group Companies, Inc. or an affiliated company in Canada, the U.S. and other countries. All other company names mentioned are the property of their respective companies.

Capital Group funds are offered in Canada by Capital International Asset Management (Canada), Inc., part of Capital Group, a global investment management firm originating in Los Angeles, California in 1931. Capital Group manages equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed income investment professionals provide fixed income research and investment management across the Capital organization; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.

The Capital Group funds offered on this website are available only to Canadian residents.