Polls show Republicans facing a rout in the midterm elections on Tuesday. Some investors are nervous about another possibility: What if the election outcome isn’t immediately known?
History shows investors don’t have much to worry about. Right now, it doesn’t look like the election will be particularly close.
On Friday, election forecaster Silver Bulletin gave Democrats a near-78% chance of winning control of the Senate and a 95% chance of gaining control of the House. In its simulations, Democrats on average ended up with 53 senators and 240 congressmen, well above the 51 seats and 218 seats, respectively, needed to control the Senate and House. But in nearly 20% of simulations, the Senate broke down either 51-49 in favor of Democrats or 50-50, with Vice President JD Vance breaking a tie.
An election that close creates the risk that control of Congress won’t be known for days or even weeks. For example, the Alaska Senate race, which relies on ranked-choice voting, is considered a potential pickup for Democrats. If no candidate gets more than 50% of the first-choice votes, Alaskan officials have said it could take until Nov. 18 to tabulate the ranked-choice votes and declare a winner.
President Donald Trump has also suggested he may challenge the results. The Justice Department sued Alaska election officials last week, asking a judge to prevent certification of the election results if the outcome is tipped by votes split between incumbent Sen. Dan Sullivan (R., Alaska) and another candidate with a nearly identical name.
Trump has said that “of course” he’ll accept the election results but has sometimes also said that he’ll accept the results “if they’re honest elections.”
“President Trump wants free and fair elections. Radical Democrats are keeping Americans from having full confidence in their elections by stacking the ballot in Alaska and fighting commonsense election security measures, like Voter ID and citizenship verification to make sure only Americans decide our elections,” said White House spokesperson Lauren Bis in a statement.
The good news for investors is that stocks have faced similar issues before and any volatility that resulted was short-lived.
“We’ve seen contested elections before and stocks generally didn’t react much,” said Joe Maher, a markets economist at Capital Economics.
Stocks rose after the 2020 election, even as Trump challenged the vote, Maher noted. The challenge was followed by the storming of the Capitol building by Trump supporters on Jan. 6, 2021, a day when stocks rose 0.6%.
Stocks fell during the Florida vote-counting battle after the 2000 presidential election between George W. Bush and Al Gore, but the selloff was considered a continuation of the dot-com bust, not a new trend.
After past contested elections saw little reaction by investors, “it’s hard to see a scenario where Trump claims the election is rigged and it has a significant effect on markets,” Maher said.
If Trump cast significant doubt on the election results, that might be more likely to lift gold prices than hurt stocks, said Michael Purves, CEO of Tallbacken Capital Advisors, an investment research firm.
“The [stock] market might not know whether Democrats have control or not, but who cares? Whether Google executes on its AI capex spend is more important,” Purves said.
Write to Joe Light at joe.light@barrons.com
