Could the Final Debate Reverberate to Congressional Races?

Could the Final Debate Reverberate to Congressional Races?

From an investor’s perspective, no significant, market-moving policy revelations emerged from the third and final presidential debate last night. While the candidates sparred on economic issues such as the national debt, entitlements and immigration that they hadn’t covered in previous debates­, no new policy prescriptions in these areas came to light to offer guidance to investors.

Nevertheless, last night’s debate was important: It was likely Donald Trump’s last real opportunity to extend his appeal to key demographics – particularly women – and to convince the roughly 15% of voters who are either undecided or support a third-party candidate that he is fit to be president.

Was he able to do it? Trump needed the performance of a lifetime, and last night’s arguably came up short. While there was enough red meat (once again) to galvanize his base, he extended few (if any?) olive branches to crucial demographics he needs in order to have a shot at winning, especially in the key swing states of North Carolina, Florida and Pennsylvania. If anything, Trump may have done more harm to his standing among women – who are expected to constitute about 53% of voters – by belittling allegations of sexual assault and remarking that Hillary Clinton was “such a nasty woman” near the end of the debate.

Is a Democratic House in the cards?
With only 19 days until Election Day and Clinton’s lead growing – both nationally and in key swing states, and even in some Republican states like Arizona – this election is Clinton’s to lose. The more salient question for investors at this point is whether her strengthening lead will precipitate a Democratic “wave” in down-ballot races that will turn over the Republican House of Representatives to Democratic control. It would take a lot for Republicans to lose their 30-seat majority in the House, especially because of the aggressive redistricting that took place after the last national census.

At this point, the generic congressional ballot, which offers an indication of voter sentiment, signals that Democrats will pick up some seats in the House but not enough to take back the majority. But if Republican voters decide not to turn out, or if more undecided and third-party voters start to break for Clinton, this could change – an outcome that would be unexpected (and maybe in the short term unwelcome) for market participants.

Libby Cantrill is PIMCO’s head of public policy and a regular contributor to the PIMCO Blog.