President Trump is set to announce his choice to replace Supreme Court Justice Ruth Bader Ginsburg after her passing last week. Yahoo Finance’s Alexis Christoforous and Brian Sozzi discuss what to expect with Stifel Company’s KBW Washington Research Analyst, Brian Gardner.
ALEXIS CHRISTOFOROUS: The body of late Supreme Court Justice Ruth Bader Ginsburg will be lying in state today at the Capital, the first woman and the first Jewish person to lie in state. At the same time, President Trump is preparing to announce his choice to replace her on the high court. That announcement will be happening tomorrow. And it could be the start of a brutal fight that could impact the election.
Brian Gardner is Washington Research Analyst at KBW, a Stifel Company. And he joins us now. Good morning, Brian. So how much, first, is this fight over the Supreme Court really weighing on the market and on investors, do you think?
BRIAN GARDNER: I don't think so much on the markets, although I do think there are some significant implications, depending on how a couple of court cases go down the road. I think some of your viewers are probably familiar with the Affordable Care Act case that's coming up. There's another case, probably you heard in the winter, related to Fannie and Freddie, the GSEs. So there are occasions.
But I think that the nomination, or the confirmation process itself, investors are trying to figure out how that plays into the election and what the follow-through is from the election into the markets. It's just another level of chaos and complexity that I think investors are trying to wade through.
BRIAN SOZZI: Brian, President Trump again yesterday saying he is not willing to commit to a peaceful transfer of power. Really, things many of us have never even heard of before with regards to that. What is the market risk if we do in fact have a contested election?
BRIAN GARDNER: So I think in some way, shape, or form, we are likely to have a contested outcome-- at least, uncertainty in the weeks following the November election. I think there are going to be a number of states that are going to be quite close. The mail-in ballot issue, and just the logistics and the time it takes to count ballots will prevent services and states from declaring winners immediately. So there is some level of chaos that is likely to take play through following the election.
The Trump comments themselves-- I don't think investors are paying too much attention to them. Remember, he made those comments initially on Wednesday night. And the market kind of [INAUDIBLE]. You have Republican lawmakers who, without naming the president directly, pretty clearly rebuffed him and said there will be a peaceful transfer of power on January 20 regardless.
So I think it's part of the Trump campaign bluster, and this is just his normal style. And I think investors are kind of used to that. So I don't think people are really figuring out yet or factoring in social unrest, having rioting because of the election outcome. But certainly, it just underscores the fact that in November, possibly December, we may not know the winner.
ALEXIS CHRISTOFOROUS: Goldman Sachs is out with a note I found interesting. And they said they think uncertainty about the election outcome has actually been overestimated by the market, and perhaps the market is a little too rich, trading a little too richly when we think about uncertainty regarding the election. Do you think that maybe the market's overdoing it a little bit?
BRIAN GARDNER: No, I don't, because part of the stew that we're looking at is that in December, Congress is probably going to have to pass another short-term funding measure to prevent the government from shutting down. And you know, if you look at raw emotions following a heated election, uncertainty about who the winner is both at the presidential level and the Senate, the need to pass another stimulus bill-- which, you know, Jessica was alluding to that earlier.
That probably is still out there. Raw emotions about the Supreme Court fight. Could there be a government shutdown on top of that, and Congress's inability, or a Trump administration's inability to fund the government past December 11? I would say yes.
So I take issue that the markets are overestimating the factor of post-election chaos. I mean, I think these are really significant and realistic scenarios that investors would be very wise to take into account.
BRIAN SOZZI: Brian, I've heard from some folks recently that this sell-off we've seen in bank stocks is somewhat related to Joe Biden leading in the polls. Would you agree with that, and why would that be the case?
BRIAN GARDNER: I think it has to do more with monetary policy and Fed communication than it does the polls themselves. I believe that a Trump regulatory agenda is preferable for bank stocks. The flip side of that is that Biden would be better, because he would-- he and Democrats would be more likely to pass a large fiscal response, which would be pro-growth and-- and help boost bank stocks.
But the-- the problem with all of this is that the Fed is in a lower-for-longer stance. There are some conflicting statements coming out from Fed officials about what policy is going forward. So net interest margins at banks are under a lot of pressure. So it has less to do with regulatory policy. It has less to do with who wins the election. I think the reaction in bank stocks has more to do with monetary policy.
And I don't think that's going to change, certainly within the first year of a Biden administration. I don't think that changes a lot either way. So you know, bank investors are kind of stuck with a lower-for-longer, low net interest margin environment. It just is not great for the sector.
ALEXIS CHRISTOFOROUS: I know that the presidential election gets all of the attention. But we also have some really important Senate races coming up. How might the Supreme Court vacancy shape those upcoming Senate races? Do both parties see it as an opportunity to rally their base for control of the Senate? Because you can argue that the outcome of those races might more directly impact the market than who wins president.
BRIAN GARDNER: Sure. So I think you have to go race by race. You can't have a blanket statement of who it helps. I think there are a couple of key races where it will help Republicans on balance. There's one or two seats where it probably helps the Democrats.
Maine in that last camp for helping the Democrats. I could see it helping Republican candidates in North Carolina, in Iowa, Arizona, Georgia. So on balance, I think it helps Republicans more than Democrats.
It clearly excites both bases. I think historically, Republican voters have been more motivated on Court-related issues in terms of election politics. So on balance, I think it helps Republicans more.
ALEXIS CHRISTOFOROUS: And what about-- I mean, look, we know that polls can be wrong. But as we near this race, we're seeing that Biden seems to be having a wider lead versus Trump in some of those key swing states. Could the conventional wisdom be wrong? Could this actually be a landslide for Biden?
BRIAN GARDNER: I-- I think we have to see on Tuesday night. The debates have not started yet. I think they have an outsized influence. And if Biden has a good debate, where he calms the fears or answers the anxieties of swing voters, yeah, it could flip in his direction.
Conversely, if he slips, doesn't look prepared, looks a little tired-- which is why they're keeping them under wraps all this week and he's not out doing public events. If he has a poor performance, then, you know, Trump continues to gain. In terms of the trends of the polls, I would be remiss if I didn't mention that, you know, back in the summer, the Biden lead at the national level was about 10. It's down to six and a half, seven.
So the trend has been Republican voters coming home. So I think the chances of a big Biden weight are pretty small. I think we're going to see a very closely contested election on election night.
ALEXIS CHRISTOFOROUS: Yeah, it looks like it's going to be a tight race. All right. Well, thanks so much. Brian Gardner, KBW Washington Research Analyst. Have a good weekend.
BRIAN GARDNER: Thank you guys.