Will markets face a 'nightmare scenario' if Donald Trump flips election results? JP Morgan investment guru fears so
A top official at JP Morgan has cautioned that the markets could witness a “nightmare scenario” if incumbent President Donald Trump eventually succeeded in overturning the results of the November 3 presidential election that he has lost to Democratic opponent Joe Biden.
According to the Daily Mail, Michael Cembalest, chairman of Market and investment strategy for J P Morgan Asset Management, issued the warning of “the remote risk of an American horror story” in a note on investors on Wednesday, November 18.
While the news of an effective vaccine for the coronavirus pandemic has seen the Dow Jones Industrial Average touching an all-time-high mark this week, Cembalest warned that an “electoral illegitimacy” undermining the rule of law could send the stock markets back into chaos. “A modest decline in the rule of law...could result in a de-rating of US equities,” Cembalest, who is working with the investment management and private banking giant for more than three decades now, wrote.
Cembalest, who is also a member of the JP Morgan Asset Management Investment Committee, predicted a number of complex situations in which the state governments give the Congress competing slates of electors and creating the possibility of having two inaugurations on January 20 and an unprecedented breakdown of the premier democracy’s institutions.
Not Trump but chaos is worrying Cembalest
The investment guru is known to be a critic of Trump who has refused to concede defeat to his opponent claiming the election was engineered in Biden’s favor. Cambalest has spoken against Trump earlier too and records reveal that the former’s only recent political donation was in favor of a Democrat running for a seat in the Senate.
The man, however, has not said in his latest warning that Trump himself is ominous for the market forces but the chaos and uncertainty that comes with the undermining of the electoral procedure would be detrimental for the valuation of American companies. The former vice president is projected to win 306 Electoral College votes as against Trump’s 232.
Each state has a deadline to certify its election results and electors from the state will meet in each state capital on December 14 to cast their votes based on the results that have been certified. Those votes will be sent to the Congress and it will meet on January 6, two weeks before the inauguration, to approve the Electoral College votes.
Cambalest fears that the GOP legislatures in states where Trump finished second-best might submit a competing slate of electors in a bid to turn the results around. That would sow seeds of a massive disaster.
“While there’s no explicit authority granted to them, a Governor or Secretary of State could also submit a competing slate,” he wrote in his notes. He also mentioned that competing slates are something rare and took place only once in the 20th century (1960) when Hawaii sent two slate electors to Congress.
In case of competing slates, the Electoral Count Act (ECA) of 1887 needs the Congress to certify whatever slate was signed by the governor. While the Democratic Party holds governorship in adequate contested states to guarantee Biden a win, Cembalest doesn’t rule out the possibility that a Republican-dominated Senate could refuse to abide by the ECA and leave the two houses split and leaving the tie-breaking vote to Vice President Mike Pence.
"In the nightmare scenario for markets, the ECA is jettisoned by the Senate, the GOP declares Trump as the victor by flipping 3 states, Democrats disagree and refuse to participate in the Jan 6th session, all of which sets up the prospect of dueling inaugurations, an outcome narrowly averted in 1876 and which led to the 1887 Act," he added.
Under the ECA, the competing slates would have to be resolved by the Congress when it meets in January.
A number of CEOs of American firms have also expressed their concerns over the political deadlock post the November 3 election and also discussed recently the step they could take collectively if the incumbent refused to step down.
