- Covid-19 pandemic has upended the US 2020 election: The onset of the global Covid-19 pandemic and the sharpest economic contraction since the Great Depression have thrown pre-crisis electoral calculations into the air.
- Biden looking increasingly strong favourite in Electoral College: Voter sentiment has swung sharply against incumbent President Trump since the pandemic and the recession began. 100 days away from the general election, Biden commands a ~10% lead in recent polls, which translates into a ~90% probability of victory. However, prediction markets remain more cautious, putting only 60-65% probability of a Biden victory.
- Coattail effect increases chance of a Democratic sweep: As important as the presidential race are also the races for US Congress, notably the Senate. Sinking support for Trump has been accompanied by increasing Democratic competitiveness in key Senate races. Even previously GOP-leaning Senate seats have now become toss-ups. This raises the prospect of first unified government since 2017-19 and the first Democratic one since 2009-11.
- A unified government can herald major policy decisions: In the 76 years since 1945 through 2020 inclusive, the United States has seen 30 years where the same party controlled the White House and both houses of Congress, or about 39% of the time. These rarer periods nevertheless open the political window to momentous policy decisions, including major legislation and even war.
- Markets may prefer initially divided to unified government: Although Biden is more centrist than some of his left-leaning colleagues, markets may still knee-jerk react with risk aversion when faced with policies to reduce inequality, reverse Trump-era tax cuts, and regulate sectors such as technology, pharmaceuticals, and energy. However, the medium-term implications could be more mixed as more fiscal spending boosts the economy, albeit at the cost of higher deficits.