4) How do we expect COVID-19 and its economic ramifications to affect November’s presidential election?

While a rash of recent polling shows Vice President Biden leading President Trump, national polling this early in the election cycle is seldom reliable. With little clarity about the trajectory of the virus—and the extent to which voters may hold President Trump responsible for the economic fallout – it is too soon to draw any real conclusions, except that like in 2016, it most likely will be another close election.

While national polls garner significant attention, the presidency will be determined—once again—by a handful of swing states. Most important in this election cycle are Arizona, Florida, Pennsylvania, Michigan and Wisconsin. It is notable that two of these states—Michigan and Pennsylvania—have disproportionately shouldered the economic burden of the pandemic fallout, seeing nearly one in every four individuals of its labor force file for unemployment. Nevertheless, Trump’s approval ratings across all five states have held up for now, but his popularity and the economic metrics in these states are worth monitoring.

5) What else should investors pay attention to in the next few months?

Investors should expect more saber-rattling on China in the coming months. Not only are there legitimate questions about China’s handling of the coronavirus outbreak, but President Trump—perhaps rightly—sees the issue as a political winner for his reelection: Recent polling suggests that the majority of Americans have a more negative view of China than at any time in recent history. It is too early to say whether the tough talk turns into more punitive action against China, although we would expect the U.S. to pursue other actions—such as export controls, visa and travel restrictions, and sanctioning of individuals—before increasing tariffs given the potential harm to the economy and because the U.S. has already implemented tariffs on $360 billion of goods from China. We also cannot rule out President Trump pulling out of the Phase 1 trade deal and escalating the trade war once again, though this is not our base case.

6) What is the outlook for congressional elections in November?

Given how important a cooperative Congress is to advancing a president’s economic agenda, the composition of Congress could be just as important for financial markets as who sits in the White House in 2021. At this point, the House of Representatives looks likely to stay in Democratic control given the large majority Democrats have going into the election along with recent trends: Democrats have gained House seats in five of the six previous general elections.

The Senate, on the other hand, could be up for grabs. Republicans currently control the Senate 53-47 and are defending 23 of the 35 Senate seats up for reelection. Of those 23, three seats appear very vulnerable (Arizona, Colorado, and Maine), while several others are competitive. At the same time, only one seat seems very vulnerable for Democrats (Alabama) and one is competitive (Michigan). Given the overlap of the competitive Senate races and the swing states for the presidential election, it seems that Senate control could very well go in the same direction as the White House. But whichever party ultimately wins control of the Senate, we expect it will only be by a seat or two – or we may even see a 50-50 split (and in that case, the vice president—and hence the White House—casts the tiebreaking Senate vote).

Libby Cantrill is head of public policy at PIMCO, and Tiffany Wilding is a PIMCO economist focusing on North America.

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