with Brent D. Griffiths

Investors have a new worry when it comes to the election: That the outcome may remain unknown for weeks.

It's a departure from investors' usual handicapping of which candidate would better serve the stock market and broader economy. But the challenges of voting amid the pandemic –  including the expectation that millions could rely on mail-in ballots, which President Trump has roundly bashed – are making the possibility Election Day might turn into election weeks or even months more likely.

To that end, three of the most important battlegrounds — Michigan, Pennsylvania and Wisconsin — are “among the least likely states to count their votes and declare a winner on election night this year,” since they can't start processing mailed ballots until Election Day, Politico reports.

And that extended uncertainty could tie an anchor on a stock market that has defied expectations with a record-fast turnaround from its spring crash.

While investors take divergent views of what the eventual outcome will mean for share prices, a significant number agree it will take an unusually long time to identify the winner.

Nearly half of respondents to a CNBC survey of 37 fund managers, strategists and economists think the victor won’t be known until at least a week after on Nov. 3. And 36 percent say it will take at least a month. Just 12 percent think the results will be clear within two days of the vote.

They overwhelmingly agree that “a contested election is a current risk to the stock market.” 

Eighty-six percent of the survey respondents said so. The angst is already registering in the market, as investors bet volatility remains elevated for weeks post-election. “The big takeaway is three month options vol is still quite high, and it has not really come down versus the two,” Wells Fargo Securities strategist Michael Schumacher told CNBC on Tuesday. “Why is that? Maybe it’s a messy result. Maybe the results aren’t even clear for a few weeks.”

The hedging against that outcome has gotten more expensive. “Both over-the-counter derivatives and options on U.S. Treasury futures show volatility priced at about six times its normal level, compared with a rate of two times normal in the 2008 and 2012 presidential elections and three times in 2016,” Bloomberg reported earlier this month, citing a JPMorgan Chase analysis. 

The one recent analog for an election that goes unresolved for weeks indicates stocks suffer. In the five weeks in late 2000 that the Bush and Gore campaigns battled out the results of the Florida vote in court, the Dow Jones industrial average dropped 5.3 percent, Ned Davis chief U.S. strategist Ed Clissold notes.   

"It’s the uncertainty it creates,” he tells me. “The one recent example suggests the market would be on the defensive until there’s a resolution.”

An extended struggle to determine the election's winners could also carry market-moving policy implications. 

And traders hungry for insights into how an electoral muddle could unfold are bombarding Washington analysts with questions. Stephen Myrow of Beacon Policy Advisors is telling clients they are right to keep an eye on the likelihood the presidential results could remain up in the air for some time. But, he adds, the process of determining which party will control the Senate next year could be just as muddy — and at least as consequential.

“I get the investor concern over uncertainty. But in terms of policy, what they care most about is taxes,” he says, noting Democrats can’t roll back Trump’s corporate tax cuts without retaking the upper chamber. “I could very well see a situation where Congress is seated in January and we still don’t know who’s in control of the Senate.”

An unsettled result would also delay progress on new emergency relief spending, if lawmakers remain deadlocked on the matter in the meantime. Democratic nominee Joe Biden and congressional party leaders want to go big on another package. Their ability to do so turns on a Democratic sweep. “The US presidential election notwithstanding, the path for US fiscal policy — and its implications for the near-term future of Fed policy — is the most important factor in macro markets,” Matthew Hornbach, Morgan Stanley’s global head of macro strategy, wrote in a Monday report.

Hornbach writes the bank’s strategists will be watching the polls. “The key driver of our view on how long the post-Election Day uncertainty will last is the polling gap” between the candidates. “The tighter the polls going into the election, the longer the wait may be.”

Money on the Hill

Pelosi faces frustration as relief talks remain stalled.

A bipartisan effort by some lawmakers to forge a breakthrough was quickly rebuked: “Multiple House Democrats expressed anxiety and frustration about the prospect of adjourning for the election without a new coronavirus relief bill, with one vulnerable House Democrat saying on a private call with leadership that she wanted to do her ‘goddamn job’ and deliver a deal for her constituents,” Erica Werner reports.

“House Speaker Nancy Pelosi announced on a conference call with House Democrats that the House would remain in session until a new agreement is struck, saying, ‘We have to stay here until we have a bill,’ according to Democratic aides. But within hours, Majority Leader Steny H. Hoyer clarified that lawmakers would not actually remain in Washington beyond their scheduled recess date of Oct. 2, and instead would be required to be on call in case they must return.”

  • Pelosi remains disinterested in legislation with a price tag under $2 trillion: “The bipartisan Problem Solvers Caucus in the House released its own attempted compromise Tuesday morning, a $1.5 trillion proposal that could grow larger or smaller depending on infection rates and vaccine progress. Trump administration officials have encouraged the group’s efforts.”

But Pelosi and other House Democratic leaders quickly rejected it:

Meanwhile, CNBC’s Jim Cramer called Pelosi ‘Crazy Nancy’ to her face.

He later defended his actions before finally apologizing for repeating Trumps favored nickname for the speaker: “During a live interview, Cramer questioned Pelosi about a CNN interview days earlier in which she had said she was optimistic about the likelihood of a deal as talks between Trump administration officials and congressional Democrats remain stalled,” Felicia Sonmez reports.

  • Heres the full exchange:

“Later Tuesday, after several tweets defending his actions, Cramer apologized on his show ‘Mad Money.’ ‘I made a very stupid comment,’ he said. ‘It was a tongue-in-cheek attempt to make a point about the harsh tone of the negotiations in Washington. But it fell completely flat and I apologize for that. . . . I have an incredible amount of respect for both the speaker and the office she holds.’”

Judy Shelton doesn't have the votes to get confirmed. 

Sen. John Thune (R-S.D.), the Senate's No. 2 Republican, said the GOP isn't giving up. “We’re still working it,” Thune said, per Rachel Siegel. “She’s a priority for the White House. It’s the Federal Reserve. It’s important, so obviously we want to get it done. But we’re not going to bring it up until we have the votes to confirm her… We’re still having some discussions and, you know, when it’s when it’s ripe, we’ll move.”

White House spokesman Judd Deere said Trump continues to support Shelton and added, "Senate Democrats should stop playing politics and confirm the President’s nominee.”

Market movers

Futures are flat as all eyes are on the Fed.

Fed Chair Jay Powell will speak after the FOMC meeting ends later today: “Dow futures were up 25 points. S&P 500 and Nasdaq 100 futures were also slightly higher,” CNBC's Maggie Fitzgerald reports.

  • “In a general sense, the tone from the meeting is expected to be one of caution, even as FOMC members are likely to have to upgrade, at least slightly, their previously downbeat economic forecasts,” CNBC's Jeff Cox reports. “In statements since the last meeting, Fed officials have been cautious on pandemic-era growth, and Chairman Jerome Powell has stated that it likely will take years before short-term rates rise from their current levels near zero."

Reddit stock threads have become a must-read for traders: “With the sway of stay-at-home traders growing and starting to eclipse other influences on equities, figuring out who is doing what among amateur stock dabblers has become a critical mission for big investors. They’re canvassing Reddit threads like r/wallstreetbets and picks at retail brokerages, plugging data into programs and trying to gain an edge,” Bloomberg News’s Sarah Ponczek reports.

“While alternative data has been a buzzword for years, demand has exploded in 2020. First it was covid-19 infection charts and travel and dining trends. Now it’s intel on what retail investors are doing with their cash. As their heft in markets has grown, individuals have morphed into a force Wall Street can’t afford to ignore.” 

Coronavirus fallout

From the U.S.:
  • At least 6,558,000 cases have been reported; at least 192,000 have died
  • Global views of the U.S. plunge: “In a new poll of 13 nations, a median of 15 percent of respondents said the United States had handled the pandemic well, while 85 percent said the country had responded poorly. The data, released by Pew Research Center, suggests that the international reputation of the United States has dropped to a new low in the face of a disorganized response to the novel coronavirus,” Adam Taylor reports.
  • Trump claims he couldn't have done more to stop covid. Some experts disagree: "I don’t think so. I think what I did by closing up the country, I think I saved two, maybe two and a half, maybe more than that lives. I really don’t think so. I think we did a very good job,” Trump said during a Tuesday town hall, Josh Dawsey reports.
  • Scientific American backs Biden, the first such endorsement in its history: “The October issue of Scientific American will carry what has never been seen in the magazine’s pages in 175 years: a presidential endorsement,” Kim Bellware reports.
  • Top HHS official apologizes for incendiary remarks accusing colleagues of "sedition": “At his meeting with staff members, Michael Caputo, the U.S. health department’s top communications official, apologized for his remarks and the embarrassment they brought upon the agency, according to the people, who spoke on the condition of anonymity to discuss the proceedings. He also indicated his departure might be imminent, saying he was considering a medical leave,” Yasmeen Abutaleb and Josh Dawsey report.
From the corporate front:
  • JPMorgan sends home some traders after worker gets covid: “News of the infection, on the fifth floor of the company’s 383 Madison Ave. building, was communicated to employees on Sept. 13 … That was less than a week after more workers began returning to offices following the Labor Day holiday, and just days after the biggest U.S. bank told senior traders they’d be required to return by Sept. 21,” Bloomberg News's Michelle F Davis and Katherine Burton report.
  • Target and these other retailers could benefit from a broader e-commerce shift: “Wayfair, Etsy and Amazon are among the e-retailers outperforming in 2020. Overstock, the best of the names with a more than 900 percent rally so far this year, even got an upgrade from Needham analysts on Monday based upon higher online spending,” CNBC’s Keris Lahiff reports.
  • Struggling hotel owners, some with Trump ties, want a bailout: “The precarious financial position that some friends of Trump and other hotel executives are now in has fueled an intense lobbying campaign aimed at persuading the Trump administration, the Federal Reserve and Congress to rescue hundreds of hotel industry players that relied on riskier Wall Street debt to finance their lodging empires before the virus hit,” the New York Times’s Eric Lipton and Jeanna Smialek report. Among the Trump friends facing trouble: Thomas J. Barrack Jr., Monty Bennett, and Doug Manchester.
  • Amazon is rapidly adding planes to its air fleet: “Amazon’s air fleet, launched in 2016, is a critical part of its push to provide one- and two-day delivery,” CNBC’s Annie Palmer reports. “The pandemic has generated even more pressure on Amazon to ensure fast delivery.” (Amazon CEO Jeff Bezos owns The Washington Post)
Around the world:
  • China says its economy is rebounding: The nation's “economic recovery accelerated in August, with retail sales, the last holdout among the economy’s major components, returning to pre-coronavirus levels by showing their first month of growth this year,” the Wall Street Journal's Jonathan Cheng reports. “Other major indicators, including factory production, investment and property activity, all gathered pace, China’s state-run statistics bureau said.”
  • India surpasses 5 million cases amid new surge: “Over the past week, India’s tally of infections has grown by more than 650,231, according to data compiled by Johns Hopkins University. No other country reported as many new cases, and India’s total is nearly three times that of the United States, which had the second-largest increase,” Antonia Farzan reports.
  • British government admits its testing is flawed: “Justice Secretary Robert Buckland admitted that the British government faces ‘real challenges’ to get its widely scrutinized test and trace system working successfully, adding that officials would do ‘whatever it takes’ to provide people with better access to testing, amid the threat of a second outbreak of the coronavirus,” Jennifer Hassan reports from London.

Trade fly-around

WTO rules Trump's China tariffs violate its rules.

The ruling has no immediate effect, beyond a diplomatic blow: “Trump’s ‘America First’ policy drew strong pushback on two fronts Tuesday, as the World Trade Organization sided with China in a legal challenge to U.S. tariffs and Canadian threats of retaliation led the United States to abandon plans for a fresh set of import taxes,” David J. Lynch reports.

“The pair of developments — coupled with the release earlier this month of data showing the trade deficit at its worst point in 12 years — reflected the incomplete state of the president’s promised globalization overhaul seven weeks before he faces voters. A three-member WTO panel struck at the core of Trump’s trade war on China, ruling that the tariffs he imposed more than two years ago on $234 billion worth of Chinese goods ran afoul of U.S. commitments under global trading rules.”

Pocket change

Oracle's courting of Trump may help it acquire TikTok.

The company's possible approval is viewed as a surprise: “Business software giant Oracle planted seeds at the dawn of the Trump administration that may well yield results in the coming weeks — the approval of a deal to allow it to handle the data from the popular short-form video app TikTok,” Jay Greene and Ellen Nakashima report.

“Neither TikTok nor Oracle outlined the details of the proposal, though it appears to fall short of Trump’s initial call to ban the app in the United States unless its operations in the country were sold to an American company … If that less restrictive arrangement is approved, it would seem to show that Oracle put itself in a position to persuade the president to dial back his earlier demands.”

  • A glimpse at their relationship: “Shortly after Trump’s 2016 election, Oracle chief executive Safra Catz served on his transition team. She has also dined at the White House with Trump. And Oracle co-founder and chief executive Larry Ellison hosted a fundraiser for Trump at his Rancho Mirage, Calif., estate in February.”

Bayer settles thousands of U.S. Roundup cases, part of an $11 billion settlement: “The agreements covered 15,000 lawsuits, according to attorneys familiar with the talks, bringing the resolved cases to about 45,000. Bayer has estimated it faces 125,000 filed and unfiled claims over Roundup,” Reuters’s Tom Hals reports. The deals only cover “lawyers who took cases to trial over allegations the herbicide caused cancer.”

GM explores market for electric “flying cars”: “Chief Executive Mary Barra on Monday briefly made her first reference ever to Detroit-based GM’s interest in the air taxi market, saying that it fit with development of electric vehicles (EVs) and its Ultium advanced electric battery,” Reuters’s Ben Klayman reports.

“GM is weighing all options — whether to build, supply or partner — as it decides whether to join such automakers as Hyundai Motor Co., Toyota Motor Corp., Daimler AG, Volkswagen and Geely Automobile in the still-developing market.”

Kraft Heinz to sell part of cheese business for $3.2 billion: “Kraft Heinz said that it had reached a deal to sell its U.S. natural-cheese business and a mix of other cheese brands in North America and internationally to France’s Groupe Lactalis SA,” WSJ’s Cara Lombardo and Annie Gasparro report.

“The Journal first reported that the sale was imminent earlier Tuesday. The maker of Heinz ketchup and Oscar Mayer deli meats, among many other foods, said the sale is part of its plan to simplify its business and focus on brands that have the best potential to resonate with contemporary consumers.” 

The regulators

Chart topper

From economist Adam Tooze: 

Daybook

Today:

  • Fed Chair Jerome H. Powell meets the press after the FOMC meeting
  • The House Financial Services Committee holds a virtual hearing on Fannie Mae and Freddie Macs response to the coronavirus. Federal Housing Finance Agency Director Mark A. Calabria is expected to testify.

Thursday:

  • The Labor Department reports the latest weekly jobless claims
  • A Financial Services investor protection subcommittee holds a virtual hearing on insider trading and corporate integrity during the coronavirus pandemic
  • A House Ways and Means trade subcommittee holds a virtual hearing on enforcing the ban on imports produced by forced labor in Xinjiang, China

The funnies

Bull session