Much of Wall Street views the Trump campaign’s efforts to overturn the election results as a desperate sideshow destined to fail. But JPMorgan is telling clients there’s still a chance that this process descends into chaos. It is 2020, after all.
Michael Cembalest, chairman of market and investment strategy at JPMorgan Asset Management, warned in a report Wednesday of the “remote risk of an American horror story” and “constitutional mayhem.”
Cembalest, who helps oversee $2.2 trillion in assets, pointed to President Donald Trump’s Tuesday night firing of the top US election security official, Attorney General William Barr’s decision to authorize prosecutors to probe alleged voter fraud and the fleeting drama over certifying election results in Michigan’s largest county.
“Bottom line: a LOT of very unorthodox things have to happen for Trump to be reelected,” the JPMorgan strategist wrote. “Even so, I’m not ruling anything out.”
Post-election chaos would of course rattle markets, which famously hate uncertainty. The smoother-than-feared election set off a celebration on Wall Street, with the S&P 500 notching its biggest post-election rally since 1932.
But if investors don’t know who’s going to be in charge of the world’s largest economy, they could easily sell first and ask questions later.
“Markets might react negatively if the US as the world’s reserve currency nation is seen as sliding down a path toward electoral illegitimacy due to post-election maneuvers by political parties,” Cembalest wrote.
To be sure, legal experts say Trump’s long-shot bid at overturning the election is just that, a long-shot. Put simply, Trump is losing by too many votes in too many states.
As Cembalest notes, Trump would need to “reverse or impede results in three states” to prevent Joe Biden from reaching the 270 electoral votes required by the Constitution. And as CNN has reported, despite Trump’s baseless claims (which Twitter has repeatedly flagged), there is no evidence of the widespread fraud required to overturn those results.
“Relax. Biden will be sworn in on January 20,” Ohio State constitutional election law expert Edward Foley wrote in a Washington Post op-ed last week, which was cited by Cembalest.
Even so, the JPMorgan strategist laid out several developments that could cast doubt on that outcome, including that one or more states submit competing slates of electors. Those competing slates would then be resolved January 6 by the new Congress through rules spelled out in the Electoral Count Act of 1887.
“The nightmare scenario for markets,” according to Cembalest, would be if Senate Republicans declare the ECA unconstitutional, flip three states in Trump’s favor to give him the required 270 electoral votes and Democrats refuse to participate.
“All of which sets up the prospect of dueling inaugurations,” Cembalest wrote, noting that this outcome was only “narrowly averted” in 1876.
Another risk laid out by Cembalest is if Barr directs investigators to “seize or impound election records” to probe for voter fraud, slowing down the process.
Dimon: ‘We have a new president’
For the most part, investors have appeared to ignore Trump’s war on the election results.
Markets have not flinched in response to headlines about his campaign’s many lawsuits. If anything, Wall Street came to terms with the outcome of the election even before CNN and other media outlets projected Biden to be the winner.
Investors have largely focused on other matters, including the makeup of the US Senate, progress in the quest to develop a coronavirus vaccine to fight the worsening pandemic and the prospects for the economic recovery.
But some are beginning to raise concerns about a transfer of power.
“I think we’re making far too little of this,” CNBC anchor Jim Cramer said Wednesday while expressing worries about a peaceful transition to a new administration.
Liz Ann Sonders, chief investment strategist at Charles Schwab, said that although her firm’s experts don’t see much of a risk of “rogue” electors, there “could certainly still be some black swan political event.”
Perhaps heeding the warnings of Cembalest, JPMorgan CEO Jamie Dimon has repeatedly urged Americans to respect the outcome of the election.
“We need a peaceful transition. We had an election. We have a new president,” Dimon said Wednesday during The New York Time’s virtual DealBook conference. “You should support that whether you like it or not, because it’s based on a system of faith and trust.”