Stars Aligning for a Democrat Sweep in November
Prospects looked bleak just seven months ago, yet everything has gone right for the president and his party since.
Today, thanks to three forces unforeseen at the time, he and his party look poised to sweep the elections, with political and economic momentum giving them the chance of being remembered as the Ronald Reagan of the Millennial generation.
After the debt ceiling/downgrade debacle, it looked like the president was so vulnerable that any of his prospective challengers could beat him. After the Ames Straw Poll, my friend Matt O'Brien and I openly speculated that if things broke the right way, a Bachmann administration was a possibility. Since that time, the GOP field has looked weaker and weaker, and while the president begins the year with relatively low support numbers, the numbers for his challengers are far worse.
Not helping the party's cause in a general election has been the recent perceived "war on women" with the fight over funding contraception in Catholic hospitals and the proposed Virginia bill requiring transvaginal ultrasounds before performing abortions.
Between August and October 2011, things looked bleak. The S&P 500 (SPY) was bouncing between 1100 and 1200 as Europe's crisis intensified. Jobless claims hovered around 400,000 per week. Nonfarm payroll growth had been below 100,000 per month for several consecutive months. Housing starts remained around 600,000 per month.
Then, for whatever reason, things started turning around in October. Jobless claims began falling steadily to the point where they're now around 350,000 per week. We've printed two months in a row with payroll growth over 200,000. The NAHB Housing Market Index, a sentiment gauge of homebuilders, has more than doubled since September, jumping from 14 to February's reading of 29. Housing starts, which were at 585,000 in August 2011, have increased by around 100,000 since then, and if the NAHB index is any indication, should increase even more going forward.
Perhaps most important, the S&P 500 has increased by 300 handles from its intraday October low, raising the president's re-election prospects with it.
After the 2010 Republican rout, it looked like 2012 would be a cakewalk for the Republicans to regain control of the Senate. The math was just too tough. Republicans have 47 senators at the moment, and of the seats up on the ballot in 2012, 23 are held by Democrats or Democrat-leading independents versus just 10 for Republicans. Most of the Republican seats looked safe, while Nate Silver's analysis showed that Republicans stood at least a 30% chance of winning 10 Democrat seats.
A couple things happened, most recently on Tuesday, to change the probabilities here. First, Elizabeth Warren, perhaps the strongest Democratic Senate candidate in the country, incumbent or challenger, decided to run for Massachusetts' seat, and threatens one of the Republican seats. Olympia Snowe announced she would not seek her seat in Maine. It will be difficult for Republicans to scramble to nominate someone who can both survive a GOP primary and then a general election in a moderate New England state.
All of a sudden, if Warren wins Massachusetts and the Democrats flip Maine, Republicans will need to capture a net of six Democratic seats if they are to regain the Senate should Obama win again, a difficult task if an improving economy helps Obama's Democrats down ballot while Republicans struggle to muster support for whoever ends up being their guy.
But what about the House? As this Intrade chart of the odds of Republicans capturing the House in 2010 shows, it takes until summer to get people focused on congressional control.
Right now everyone is focused on primaries, and guys like Nate Silver and Charlie Cook haven't begun prognosticating all 435 House races. In many cases we don't know who the candidates will be yet. What we know is that the Democrats love their guy. Republicans won't love their guy quite as much. Independents may not be huge fans of the Obama administration, but they are even less supportive of the Republican candidates. This enthusiasm gap will impact voter turnout and hence House races.
Demographics will be much different for the 2012 electorate than they were in 2010. The US Census keeps meticulous records of voting demographics by election. What they show is that Millennials, those born after 1980 and part of Obama's "coalition of the ascendant" in 2008, made up 14% of the electorate in 2008 but just 11% in 2010, despite gaining "voting age share" over those two years.
Young people and minorities are less enthusiastic in midterm elections. With Millennials four years older in 2012 than they were in 2008, there will be both more of them eligible to vote in 2012 than there were in 2008, and their turnout rates will be higher. The 24-year-olds of 2008 are now 28, and 28-year-olds vote in higher numbers than 24-year-olds do. What does this mean? Roughly 20% of the 2012 electorate should be Millennials, nearly doubling their share over the 2010 midterms. This is significant because Millennials broke for Obama over McCain by a whopping 34 points in 2008.
Additionally, there is record-low support of Congress – Obama's approval problems aren't limited to himself. As of January, Democrats in Congress have a 33% approval rating, while Republicans have a 21% – the bitter debt ceiling fight bruised their standing, so it's not clear that they stand to benefit from a stronger-than-expected economy in 2012.
Investors will have to decide what to think of the prospect of a Democrat sweep – will the end of the threat of austerity and the possibility of more stimulus be a positive for the economy and markets? Will a rejuvenated, second-term Obama just mean higher taxes and more regulation? Whatever the conclusion, tops-down a Democrat sweep appears far more likely than the consensus believes.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter