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Review the latest Weekly Headings by CIO Larry Adam.

Key Takeaways

• Voters may focus on COVID-19 concerns instead of economic
• Digital platforms may be used to capture new voters
• Congress may be closer to a stimulus compromise

Just yesterday our team published our updated outlook for the economy and financial markets as we prepared to enter the fourth and final quarter of 2020. Aside from discussing our forecasts and rationales, we expressed that the year has taught investors to continually expect the unexpected. Hours later, President Trump and the First Lady tested positive for COVID-19, and although Vice President Pence tested negative, one can reasonably expect that other top White House officials and aides will have also contracted the virus. Above all, we wish the both of them, as well as any other citizen that has become sick with the virus, a quick recovery. However, with the US economy at a critical stage in its recovery process, the financial markets grappling with further uncertainty, and the election just 32 days away, we find it necessary to address the major questions and potential implications that could result from this unexpected development.

• How Will This Impact The Presidential Race? | After the first of three expected presidential debates this week, our Washington Policy Analyst, Ed Mills,* believed that former Vice President Biden had the edge with a steady lead in national polls (6.1%), betting markets (69% probability of Biden win), and key swing states. With many voters casting their ballot before election day, this is a critical time for both candidates. In fact, at least 2.6 million voters have already cast their ballots (1.7% of the 2016 turnout**), and significantly more are expected over the next few weeks as many state deadlines are ahead of November 3. More important, Democratic early voters are outnumbering Republicans by a 2-to-1 margin. This latest news provides another headwind for President Trump as much of his path and strategy to reelection has been called into question.
  • COVID-19 Concerns May Overshadow Economic Issues | President Trump’s campaign was hopeful that the release of positive economic data over the next few weeks would edge his economic approval rating of 51% even higher (currently the highest level since May) and give his reelection prospects a necessary boost ahead of Election Day. Today’s employment report, for example, showed the unemployment rate declined for the fifth consecutive month to 7.9%, a significant improvement from April’s 14.7% rate. Positive sentiment in dealing with the economy tends to favor the incumbent. While President Trump was hoping voters’ would focus on the economic recovery and the re-opening of more activities, his sudden COVID-19 diagnosis brings the virus back to the forefront where his poll numbers are weaker. Only ~40% of respondents approve of the manner in which he has handled the outbreak, and with more than 30 states experiencing a rise in cases, these approval ratings may decline further.
  • Methods For Reaching Voters Will Have To Shift | Since his 2016 campaign, President Trump has relied upon in-person rallies and a significant ground force to excite voters about his policies. Now that he will likely have to quarantine for two weeks, he will be unable to host his in-person events and his campaign workers knocking door to door (estimated at ~1 million/week) may be limited in their grassroots effort to get his message out, especially with undecided independent voters who are expected to be the deciding factor in this election. In the short term, the lack of personal contact by President Trump and his campaign will likely dampen some of the enthusiasm advantage he was attempting to build on the campaign trail. However, he may very well attempt to leverage digital platforms such as Twitter until he is out of quarantine to maintain some momentum.
  • Debating the Debates | It is too early to determine the status of the two remaining presidential debates. However, next Wednesday’s Vice Presidential debate remains significant, as both candidates will have to showcase that they are prepared to lead the country if needed. Remember that both Biden and Trump would be oldest president to be inaugurated.
• How Will This Impact The Stimulus Negotiations? | After a narrow vote in the House of Representatives last night (214 to 207), it seemed unlikely that the Democrat’s most recent stimulus proposal would be approved by the Senate. However, there does appear to growing pressure (especially from vulnerable colleagues locked in tight races) on both House Speaker Pelosi and Senate Leader McConnell to come to a compromise. And this morning, with the public’s need for reassurance even more elevated, Speaker Pelosi remarked that both parties are “coming to terms” on the Phase 4 stimulus deal, and that she believes a successful path will be found. Our base case remains that after the election is more likely, but a deal before the election would not only benefit the economy, but also serve as an upward catalyst to the equity market.
• Supreme Court Nomination Delay? | President Trump’s Supreme Court nominee, Amy Coney Barrett, has been meeting with members of the Senate in her confirmation process. If she has come into contact with someone who tests positive for COVID (e.g., Mike Lee of Utah announced he tested positive), or she herself tests positive, it could delay hearings for her confirmation.

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All expressions of opinion reflect the judgment of Raymond James & Associates, Inc., and are subject to change. Information has been obtained from sources considered reliable, but we do not guarantee that the material presented is accurate or that it provides a complete description of the securities, markets or developments mentioned. There is no assurance any of the trends mentioned will continue or that any of the forecasts mentioned will occur. Economic and market conditions are subject to change. Investing involves risk including the possible loss of capital. International investing involves additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. These risks are greater in emerging markets. Companies engaged in business related to a specific sector are subject to fierce competition and their products and services may be subject to rapid obsolescence. Past performance may not be indicative of future results.