The loss of U.S. Supreme Court Justice Ruth Bader Ginsburg, who died on Friday at age 87, comes at a particularly edgy time for the markets.
Volatility has been rising lately as the presidential election draws closer. That isn’t unusual: Stocks typically sells off an average 2% from September to November in presidential election years, according to UBS, as investors try to predict whether major changes are coming in fiscal, monetary, and regulatory policy.
This election was already shaping up to be one of the most bitterly contested in modern history, and the vacancy on the Court only increases the uncertainty about the results.
“Politically, her passing enhances an already toxic environment,” says David Bahnsen, a financial advisor in California, though he adds that it’s too soon to predict the market impact.
Keith Lerner, chief market strategist for SunTrust Advisory Services, says the Court vacancy doesn’t change the market’s underlying narratives. The forces that have fueled the rally and lately caused stocks to wobble—including Fed policy and the impact of Big Tech on the S&P 500—remain intact. But Lerner also sees more potential for volatility to persist after election day.
Historically, the VIX volatility index has increased in every October of a presidential election year since 1992 and then receded after election day. If the results are contested after Nov. 3, volatility could stay elevated.
“This adds more fuel to a very high pressure, high-emotion election, but it’s not a game changer by itself for market impact,” he says.
President Donald Trump said he plans to nominate a candidate shortly, and he warned Republicans in a
message on Saturday to push forth his candidate “without delay!” Senate Majority Leader Mitch McConnell said Friday that the president’s nominee would receive a vote on the Senate floor, though he did not say if it would come before the election or afterwards in a lame-duck session of Congress.
Without Justice Ginsburg, the court, as it stands, is stacked with five Republican-nominated justices and three that were nominated by Democratic presidents. President Trump appointed two justices: Neil Gorsuch and Brett Kavanaugh. Chief Justice John Roberts has been a swing vote in some cases lately, siding with liberal justices on immigration, LGBTQ rights, and abortion rights. But he sided with the conservative majority in 2010 in a major election case, Citizens United, which ruled that corporations and other outside groups could spend unlimited money on elections, paving the way for the current era of “super PACs.”
If a new justice does make it onto the court before the election, the first case he or she might hear may be about the election itself. President Trump has repeatedly indicated that he may challenge the results due to widespread voting by mail that he has claimed create opportunities for fraud. Democratic nominee Joe Biden, meanwhile, has amassed hundreds of attorneys to handle legal challenges of state election results and a contest that may be settled once again by the Supreme Court.
One Wall Street strategist contacted by Barron’s said that it was too soon to say how the markets would react to the upheaval over the court vacancy.
“I hosted a poker game last night and you could drive a truck through the debate—whether it would be better for Biden or Trump,” the strategist said. “Markets were volatile and consolidating over the last two weeks. The elections increase uncertainty and this is another issue that the market has to grapple with.”
Bahnsen also says it’s too soon to predict the market impact. “I do not see an easy way for anyone to handicap this with high conviction,” he says.