Much of Wall Street views the Trump campaign’s efforts to overturn the election results as a desperate spectacle destined for failure.
But JPMorgan is telling its clients that there is still the possibility of this process turning into chaos. After all, it is 2020.
Michael Cembalest, president of market and investment strategy at JPMorgan Asset Management, warned in a report today of the “remote risk of an American horror story” and “constitutional chaos.”
Cembalest, who helps oversee $ 2.2 trillion in assets, pointed to President Donald Trump’s firing Tuesday night of the largest county top election security official.
“Bottom line: A LOT of very unorthodox things have to happen for Trump to be re-elected,” wrote the JPMorgan strategist. “Still, I’m not ruling anything out.”
Post-election chaos would, of course, shake markets, which are famous for hating uncertainty. The more fluid election than feared triggered a celebration on Wall Street, with the S&P 500 marking its biggest post-election rally since 1932.
But if investors don’t know who will be in charge of the world’s largest economy, they could easily sell first and ask questions later.
“Markets could react negatively if the United States, as the nation with the world’s reserve currency, is seen to be slipping into electoral illegitimacy due to post-election maneuvers by political parties,” Cembalest wrote.
To be sure, legal experts say that Trump’s risky bid to roll back the election is just that, a long shot. Simply put, Trump is losing by too many votes in too many states.
As Cembalest points out, Trump would need to “reverse or impede the 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 unsubstantiated claims (which Twitter has repeatedly pointed to), 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, cited by Cembalest.
Still, the JPMorgan strategist presented several developments that could cast doubt on that result, including one or more states submitting competing voter lists.
Those competing lists would then be resolved on January 6 by the new Congress through detailed rules in the Electoral Counting Act of 1887.
“The nightmare scenario for the markets,” according to Cembalest, would be if Senate Republicans declare the ECA unconstitutional, invert three states in favor of Trump to give him the required 270 electoral votes, and Democrats refuse to participate.
“All of which creates the prospect of investiture duels,” Cembalest wrote, noting that this outcome was only “narrowly avoided” in 1876.
Another risk exposed by Cembalest is if Barr orders investigators to “seize or seize electoral records” to investigate voter fraud, which will slow down the process.
Dimon: ‘We have a new president’
For the most part, investors seem to ignore Trump’s war on election results.
Markets have been unfazed in response to headlines about his campaign’s numerous demands. If anything, Wall Street accepted the election result even before CNN and other media outlets projected that Biden would be the winner.
Investors have largely focused on other issues, including the makeup of the United States Senate, progress in the quest to develop a coronavirus vaccine to combat the worsening pandemic, and prospects for economic recovery.
But some are beginning to raise concerns about a transfer of power.
“I think we are doing very little of this,” said CNBC host Jim Cramer while expressing concern about a peaceful transition to a new administration.
Liz Ann Sonders, Charles Schwab’s chief investment strategist, said that while her firm’s experts don’t see much risk from “rogue” voters, “there certainly could be some black swan political event.”
Perhaps heeding Cembalest’s warnings, JPMorgan CEO Jamie Dimon has repeatedly urged Americans to respect the election outcome.
“We need a peaceful transition. We had elections. We have a new president,” Dimon said today during New York weatherDealBook virtual conference.
“You should support that whether you like it or not because it is based on a system of faith and trust.