SCOTUS and Three Charts to Think About

SEPTEMBER 23, 2020

It was already expected to be a contentious election season, but the passing of Ruth Bader Ginsburg has increased uncertainty and the divide between political parties. The vacancy in the Supreme Court of The United States (“SCOTUS”) is expected to be a primary focal point for Congress, as well as messaging from candidates.

In what has taken a “back seat” in political news since the passing of Ruth Bader Ginsburg, we are less than a week from the first Presidential debate next Tuesday night. We wanted to recap three charts we are paying attention to as we get into the thick of the race.

SCOTUS

Due to the upcoming presidential election and the much needed COVID-19 relief bill, Washington DC was already expected to be the focus of the news cycle for the next six weeks, but with the passing of Supreme Court Justice Ruth Bader Ginsburg, the focus on Washington DC has been magnified. Here is what we are looking at for the SCOTUS nomination’s impact on markets:

– Due to the importance of a lifetime appointment, as well as the proximity to the presidential election, it is expected that the SCOTUS nomination/confirmation slows the completion of the next COVID-19 relief package. Economic data has improved significantly over the last six months, but there are still over 13.6M people unemployed in the US and many industries are still under high duress (hospitality, travel & leisure, etc.). We continue to monitor the economic data, but a delay in the next fiscal package could lead to a levelling off in the improvement we’ve been seeing.
– Both political parties are using the SCOTUS vacancy to mobilize their constituents regarding the presidential election. President Trump will use this to appeal to voters that see the importance of the SCOTUS on social issues, allowing him to pivot away from the topic of COVID-19. Biden will use the Senate’s blocking of Merrick Garland’s nomination in 2016 to suggest Senate Republicans are hypocritical and are “flip-floppers.” On balance, the campaign benefit appears to slightly favor Trump.
– It is expected that the long-term impact on US politics is that the “divide” between two parties that has been increasing over the last decade will continue to widen. Initial comments from both sides suggest that the upcoming battle for the future of the Supreme Court will be (to put it nicely) controversial. This can be expected to result in reduced bipartisanship over the coming years.

In addition to shifting the Supreme Court further to the right, Republicans are looking to confirm the next justice before inauguration for multiple reasons, namely; 1) Should the presidential election result require a Supreme Court decision, a more conservative bench is beneficial, 2) The upcoming review of Obamacare, 3) The future review of gun rights, and 4) Should Biden win the presidency, a more conservative SCOTUS will be more likely to overturn executive orders.

Chart 1: S&P 500

Strategas policy research has noted the performance of the S&P 500 in the three-months leading into the election serves as a strong indicator on which party will win. If the S&P 500 is positive in the three-month period, the incumbent party is expected to win; if the S&P 500 is negative, the challenger party is expected to win. This measure has correctly predicted the last nine election and 87% (20 of 23) since 1928.
See below for where we stand through September 22nd. So far, while extremely close, this favors former Vice President Joe Biden.

Chart 2: Stock Baskets

We created two themed stock baskets to represents the benefactors of a Democratic win (e.g. China stocks, ESG, muni bonds, renewable energy) or a Republican win (e.g. defense, financials, for-profit institutions). As we have observed this performance alongside betting odds/polling data, we believe the Republican Basket would need to narrow the deficit below 5% by Election Day.

As it stands through September 22nd… so far, this favors former Vice President Joe Biden.

Chart 3: Swing State Polls

Let’s review the last four incumbents seeking reelection in the table below. You will see the incumbent has steadily won a smaller share of states and a smaller share of the two-party vote.

Looking at national polls may be misleading as the political bases widen from the center. No longer are we seeing mass agreement from the U.S. voter base, a la Reagan in 1984. Adding more votes in a firmly Democratic state, like California, or a firmly Republican state, like West Virginia, will move the popular vote but does little for the electoral college. The swing states have only increased in importance.

The chart below highlights Biden’s polling lead in key swing states. Trends we are watching in these states include COVID-19 cases and unemployment claims. So far, this favors former Vice President Joe Biden, but President Trump has gained ground in four of the five states since July 1st.

And two facts on the state of Florida.

1. 1992 was the last time a President won the election without winning Florida.
2. The last Republican President to win the election and lose Florida was Calvin Coolidge in 1924.

For more information around Hightower’s Investment Solutions, please reach out to us at businessdevelopment@hightoweradvisors.com.

Disclosures
OCIO at Hightower Advisors is a team of investment professionals registered with Hightower Securities, LLC, member FINRA/SIPC, & Hightower Advisors, LLC a registered investment advisor with the SEC. All securities are offered through Hightower Securities, LLC and advisory services are offered through Hightower Advisors, LLC. This is not an offer to buy or sell securities. No investment process is free of risk and there is no guarantee that the investment process described herein will be profitable. Investors may lose all of their investments. Past performance is not indicative of current or future performance and is not a guarantee. In preparing these materials, we have relied upon and assumed without independent verification, the accuracy and completeness of all information available from public and internal sources; as such, neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Hightower shall not in any way be liable for claims and make no expressed or implied representations or warranties as to their accuracy or completeness or for statements or errors contained in or omissions from them. This document was created for informational purposes only; the opinions expressed are solely those of the author, and do not represent those of Hightower Advisors, LLC or any of its affiliates.

1. Source: Bloomberg.
2. Source: 270towin.com; includes Washington D.C.
3. Source: 538.
4. Source: Alliance Bernstein, 270towin.com.