United States: Is this the end for the Democrats?

United States: Is this the end for the Democrats?

Macro
CD
Christopher Dembik

Head of Macro Analysis

Summary:  The Virginia governor's race was seen as a referendum on president Joe Biden's first year in office. In this state, Biden won by 10 points in the 2020 presidential election. The incumbent Democratic Governor Ralph Northam was backed by the Democratic administration. He lost against a novice Republican candidate, Glenn Youngkin, who was careful to thread the needle between accepting support from former president Donald Trump, while avoiding a full embrace of his style. This is a blow to Biden whose approval ratings have fallen in recent months following the disastrous withdrawal from Afghanistan, skyrocketing inflation and a legislative agenda that has stalled in Congress. The historical record suggests that the party of a newly elected president will lose some power in the ensuing midterms. But expect the 2022 midterms to be a more severe defeat for the Democrats than most currently expect.


What happened ? 

  • In New Jersey, the incumbent Democratic Governor Phil Murphy narrowly won the election against the Republican former state lawmaker Jack Ciattarelli. The race was supposed to be easier for the Democrats. New Jersey is a traditional Democratic stronghold. But support for the Democrats noticeably decreased in the rural south of the state which usually votes massively for the party. This is a warning signal ahead of the 2022 midterms.
  • In another Democratic stronghold, Virginia, the incumbent Democratic Governor Raph Northman lost against a novice Republican candidate. This is the first time it has happened since 2009. The Governor was backed by Biden and all the Democratic Party establishment. The result is brutal. 
  • Republicans delivered historic vote counts for court candidates in Pennsylvania. Closeness to Trump was not needed to win. This matters a lot for the midterms. Voters will choose a new governor and a new U.S. senator for this state next year.

Presidents usually get « shellbacked » in midterm elections

The Democrats brushed off the election results. They said the party of a newly elected president usually does poorly in the ensuing elections, including in the midterms. This is true. It usually happens no matter what the party does or does not. Since 1862, which marks the start of the Republican-Democrat duopoly, 40 House of Representatives elections have taken place. The President’s party lost seats in 37 of these 40 elections – meaning 93% of the time. There are some exceptions : 1934, 1998 and 2002. In these elections, the President’s party won seats in the House of Representatives. It was partially explained by partisan realignment. The President’s popularity does not change anything. Some of the most popular presidents lost the midterms : Dwight Eisenhower (1958), John F. Kennedy (1962) and Ronald Reagan (1986), for instance. Lost seats can go up to 127 (1894). But it is most of the time under 50. In our view, unless there is a major turn of events, it is a done deal that the Democrats will lose grip on the Congress and a relative majority in the 2022 midterms. Expect a brutal defeat.

But the Democratic Party’s problems are more deep-rooted

The Democrats can draw new electoral district boundaries and facilitate exercising the right of vote. This might be of some help. But it won’t be enough.

The Democratic Party’s problems are more deep-rooted. There are mostly three issues :

  • Confusing messging leads to confused voters. The Democrats are deeply divided on Biden’s economic agenda, especially the $1.75 trillion package of safety net benefits and climate programs. 
  • There are no obvious leaders for the years to come. The speaker of the House, Nancy Pelosi, is 82 years old. The Vice President, Kamala Harris, lacks leadership qualities. The rising star of the Democratic Party, the newly elected Mayor of New York Eric Adams must first demonstrate he is in capacity to govern and to fulfill his electoral promises before thinking about his next career step.
  • The most liberals within the Party showed no interest in addressing the needs of the coveted median voter. This argument is put forward by David Shor, a data guru and former staffer of the 2012 Obama presidential campaign. He calls it "the Democrats’ privileged college-kid problem". In his view, very progressive and ideologically motivated young people are overrepresented within the core of the Democratic Party’s infrastructure. They yield a significant influence over the messaging and policy decisions. They promote culture war and radical messaging on social issues instead of talking about issues that matter to the moderate voters the party needs to win over to secure governing majorities in Washington. What will happen if the Party does not distance itself from the cancel culture and the woke movement ? It will likely lose ground for a long time within moderate voters. The Democrats will lose the 2024 presidential election unless their "best enemy", former president Donald Trump, is the Republican candidate. Shor is more straightforward : Democrats will be screwed. 
Biden’s popularity compared to that of the three previous presidents (source : FiveThirtyEight)
Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo Capital Markets HK Limited holds a Type 1 Regulated Activity (Dealing in securities); Type 2 Regulated Activity (Dealing in Futures Contract) and Type 3 Regulated Activity (Leveraged foreign exchange trading) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong

By clicking on certain links on this site, you are aware and agree to leave the website of Saxo Capital Markets, proceed on to the linked site managed by Saxo Group and where you will be subject to the terms of that linked site.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

Please note that the information on this site and any product and services we offer are not targeted at investors residing in the United States and Japan, and are not intended for distribution to, or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Please click here to view our full disclaimer.