Market and Economic

Turning up the heat on a boiling pot

The passing of Supreme Court Justice Ruth Bader Ginsburg has created a vacancy in the U.S. Supreme Court with only weeks until the November election.
September 2020

The passing of Supreme Court Justice Ruth Bader Ginsburg has created a vacancy in the U.S. Supreme Court with only weeks until the November election. As the country awaits President Trump’s nominee, pundits on both sides of the aisle are claiming this process will strengthen their election chances. We see this process as primarily exacerbating the partisanship of U.S. voters and it is unclear which party will able to drive greater voter turnout or sway more independents. In the short term, this development makes us more cautious in the market since it further inflames partisanship and reduces the odds of another stimulus bill before the election. Where it may have greater implications is on the future of U.S. legislation, considering a Trump nominee will shift the court from a precarious 5-4 conservative majority to a much firmer 6-3 majority.

President Trump is expected to nominate a new member to the Supreme Court over the coming days. While he has asked the Senate to confirm the nominee before the November 3 election, the most likely outcome is that confirmation votes will occur during the lame duck period between elections and the swearing-in of the new government in January.

The impact on the election is hotly debated, but we believe it does not materially change the current polling of a slight Biden lead going into first presidential debate on September 29. According to a recent Reuters poll, 62% of American adults – including a plurality of Republicans – believe the next Supreme Court justice should be filled by the winner of the election while only 23% disagreed, so fast-tracking of the nomination could help the Democrats who claim a swift confirmation pre-election is a partisan use of power. However, this is likely balanced by a potential boost to President Trump from conservatives (particularly Evangelicals) who generally share his politics but are hesitant to vote for him based upon his political style. Additionally, the nomination shifts attention away from COVID-19, particularly as the U.S. case counts are slowly increasing once again. Maybe most tellingly from the Reuters poll is that when asked “what impact will Justice Ginsburg’s death have on your vote?” the most common answer was “no impact.”

Turning away from the election implications, we think the shorter-term impact is negative from a market standpoint. The Supreme Court confirmation process is bound to consume Washington over the coming weeks and months, increasing partisanship and reducing the odds that Democrats and Republicans can unite to pass further stimulus for an economy still vulnerable with elevated unemployment. A breakthrough remains possible, but less likely.

Assuming President Trump’s nominee is eventually approved, the dynamics of a stronger conservative court majority will be felt for years. Even if Democrats complete a sweep in November, they may have some of their further-reaching legislation struck down by the court. There are also bound to be stronger calls – particularly from more progressive activists and legislators – to increase the number of Supreme Court seats or diminish the role of courts. These issues will not be resolved in the coming weeks or months but threaten to become more fractious debates in an already polarized world.

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This is not intended to serve as a complete analysis of every material fact regarding any company, industry or security. The opinions expressed here reflect our judgment at this date and are subject to change. Information has been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy. This presentation may contain forward-looking statements. “Forward-looking statements,” can be identified by the use of forward-looking terminology such as “may”, “should”, “expect”, “anticipate”, “outlook”, “project”, “estimate”, “intend”, “continue” or “believe” or the negatives thereof, or variations thereon, or other comparable terminology. Investors are cautioned not to place undue reliance on such statements, as actual results could differ materially due to various risks and uncertainties. This publication is prepared for general information only. This material does not constitute investment advice and is not intended as an endorsement of any specific investment. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors should seek advice regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investment involves risk. Market conditions and trends will fluctuate. The value of an investment as well as income associated with investments may rise or fall. Accordingly, investors may receive back less than originally invested.

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