A closer look at the 2020 elections

This November 3, America votes on the balance of power. We examine what's at stake, the possible outcomes, and what could be in store for investors' portfolios.

Determining the balance of power

When voters head to the polls in November, collectively they'll cast ballots not just for the president, but also for the entire House of Representatives and about a third of the Senate.

Who’s in control now?

The balance of power in Congress is currently split, with Democrats controlling the House of Representatives and Republicans holding a slim majority in the Senate.

This infographic shows a breakdown of the U.S. Senate seats. It states that 35 of 100 seats are available for re-election. Currently, the Republicans hold a majority at 23 seats, while Democrats hold 12 seats.
This infographic shows that the U.S. House of Representatives has 435 seats, and all members are up for re-election.

Are changes on the horizon¹?

In the House, recent polling averages show just 50 seats that are either toss-ups or close matches. For the House to switch to a Republican majority, the GOP would need to win 38 of those 50 contests—an uphill battle, to be sure.

A reversal of fortunes in the Senate appears more likely, where the Democrats stand a good chance of regaining control. Only 2 of the 12 Democrats up for reelection appear to be in competitive races; Republicans, meanwhile, face stiff competition for 10 of the 23 seats they seek to retain or fill. If Democrats flip 4 of those seats, they’d gain a majority in the Senate.

The GOP would need to flip or fill 21 seats to retake the House; the Democrats need to flip only 4 seats to recapture the Senate.

The road to the White House

The real story this fall, of course, is the contest for the presidency. While there are many factors that will come into play, one proxy for President Trump’s chances of retaining the White House is his approval rating. Looking back at the past six times a sitting president has run for reelection, those with ratings better than 40% have won second terms; those below that threshold have not.

This infographic shows that current President Donald Trump has a 42% approval rating.

Want more detail? See President Trump's most current and historical approval ratings here.

This graph displays the job approval ratings for past U.S. presidents seeking re-election from 1976 – 2020. Of those re-elected, Bill Clinton had 60%, Ronald Reagan had 57%, George W. Bush had 51%, Barack Obama had 44%. Of those defeated, George H.W. Bush had 39%, and Jimmy Carter had 37%.

Home field advantage?

While Trump’s approval ratings suggest Democrat challenger Joe Biden has an opening, it’s also true that incumbents have generally had a home field advantage. History shows that voters’ presidential preferences have been cyclical: It’s been uncommon for the White House to be occupied by either party for just one term—and it’s been just as uncommon for it to remain in one party’s control for more than two terms.

This table shows illustrates that incumbent parties have generally had a home field advantage during elections. History shows that voters’ presidential preferences have been cyclical: It’s been uncommon for the White House to be occupied by either party for just one term—and it’s been just as uncommon for it to remain in one party’s control for more than two terms. This table shows how each party in the White House has fared in presidential elections from 1960 to 2016. After one term, the Democrats won in 1964, 1996, and 2012 and lost in 1980. After two or more terms, the Democrats did not win, and lost in 1968, 1976, 2000, and 2016. After one term, the Republicans won in 1972, 1984, and 2004. After two or more terms,  the Republicans won in 1988, and lost in 1960, 1988, 1992, and 2008.

How has the stock market performed under different administrations?

Despite the unknowns in November, investors can take confidence in the fact that the stock market has always been much more a reflection of the country's economic prospects than its political tenor. Over the past 40 years, two Democratic administrations topped the list of the best market environments, although the market has generally shown resilience regardless of which party occupies the White House.

This table is an indication of how the stock market has performed under different administrations from 1977 to the present day. It lists each president, term served, and the S&P 500 index in percentage during that term. Since 1977, two Democratic administrations topped the list of the best market environments, although the market has generally shown resilience regardless of which party occupies the White House.

1 Sources: www.fivethirtyeight.comwww.cookpolitical.com, as of September 4, 2020.

A rise in interest rates typically causes bond prices to fall. The longer the average maturity of the bonds held by a fund, the more sensitive a fund is likely to be to interest-rate changes. The yield earned by a fund will vary with changes in interest rates.

Currency risk is the risk that fluctuations in exchange rates may adversely affect the value of a fund’s investments.

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