As we wrote two days ago, the risk for elevated market volatility is a contested result. At the time of our writing, it looks like this election might not be a smooth one indeed. It even feels like 2000…
While the name of the U.S President is usually known based on Election Day ballots, the President is ultimately chosen by the Electoral College, made up of electors from each states.
As shown in the time schedule below (courtesy of The New York Times), this is how it is supposed to work:
Usually, the election result is not resolved until a losing candidate concedes defeat and congratulates his opponent.
But due to last night tight race and the large volume of mail-in ballots that needs to be counted, the process may take longer than usual. Moreover, the result may be close enough in some states to draw recounts. Last but not least, the likelihood of legal challenges in one or more battleground states is high. Already, armies of lawyers for the Trump and Biden campaigns are preparing for litigation.
On Trump side, they have long pushed allegations of voter fraud without evidence and raised questions about the validity of the mail-in vote. Lawsuits over ballot deadlines and when to count or toss out votes have already been filed in critical states.
The New York Times prepared the diagram below showing the path to elected President. According to them, it could be weeks before President Trump or Joe Biden Jr. is named the winner. In some scenarios, the contest drags into 2021!
Indeed, the uncertainty over the results in the coming days and weeks could lead to battles in court, in the Electoral College, and, ultimately, in Congress.
Here’s a high-level summary of what could happen:
1/ Disputes over the results
The results that states report on election night can take several days and even weeks for officials to count and certify the vote. When the outcome is close, candidates can dispute the initial result in the following way:
i/ Recount: In the 2000 presidential election, a narrow margin in Florida triggered a recount in all counties, and Al Gore later filed suit to force hand recounts in four predominantly Democratic counties;
ii/ Results contested: Disputes over whether election officials are counting too many ballots or too few could set off a wave of litigation in both state and federal courts that could ultimately find its way to the Supreme Court.
2/ Disputes over electoral votes
The deadline to choose electors to ensure their votes are counted by Congress is 8th of December (the “safe harbor” deadline).
Recounts and legal challenges could threaten a state’s ability to meet the deadline.
If the outcome of a recount or a dispute is swift, a state can appoint its electors.
If not, a state legislature has the authority under the Constitution to appoint the state’s electors, regardless of the status of the popular vote. A state legislature could decide that election results, still in dispute, are unlawful and select their own electors.
In 2000, Florida’s Republican-majority Legislature voted to select a slate of electors backing George W. Bush, even as the courts were still handling the recounts.
But disputes may not end there as the governor and legislators could disagree about the outcome and could each choose to appoint rival slates of electors supporting different candidates.
3/ Disputes in Congress
Electors will meet in each state on Dec. 14 to cast their votes. But some electors could choose to vote for a candidate other than the one they promised to support or decline to vote altogether.
The newly elected Congress meets on Jan. 6 to formally count the electoral votes and name the president. If there is no clear winner in the Electoral College:
Outcome #1: One candidate wins a majority (270) but members of Congress can challenge or reject the electoral votes, though that process is complicated and rare.
Outcome #2: No majority. If the count reveals that the candidates are tied or if no candidate receives a majority, then the House of Representatives votes to choose the President. The House has decided only two elections in U.S. history — in 1800 and 1824.
On Monday, House Speaker Nancy Pelosi said that Congress is prepared to decide the presidential election if the results are disputed. “We understand what the law is and the preeminence of the role of Congress and specifically the House of Representatives when it comes to counting the votes,” Pelosi said in an interview.
But while Democrats control a majority of the total number of House seats (and seem to hold the majority), under the 12th Amendment, the House does not vote on a president the way it would vote on a bill.
Instead there are special rules. Each of the 50 House delegations — which consists of representatives from every congressional district in that state — receives only one vote. So California, with its 53 House representatives, gets one vote, and Montana, with its one House representative, also gets one vote. And that vote is determined by the majority of the delegations.
So it could very quickly come down to red-state (Republicans) vs. blue-state (Democrats) math. And since Republicans tend to lead in many of the less-populated states, this would work to their advantage…
Bottom-line
While future markets were pointing out towards a strong opening, equity markets are whipsawing. Moreover, bonds and the dollar are well bid on Wednesday as results from the U.S. presidential election proved far closer than polls had predicted, potentially leaving the outcome in doubt for days if not weeks to come.
As a final note, PredictIt now has President Trump as their favorite winner.
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