With the US elections approaching one of the worries that may rear its head is a concern that has come to be known as the ‘big blue shift’. The ‘big blue shift’ is the possibility that President Trump declares a victory on election night, but further vote-counting over subsequent days and weeks results in a Joe Biden victory. As you can imagine that would throw the US administration into real confusion.

Is this possible?

The term ‘big blue shift’ was used by Edward B. Foley in his 2013 paper which studied elections in the US all the way back to 2000. He found out that Democrat candidates are more likely to make significant gains in the official and complete counting of ballot boxes. You can view his research here: ‘Preparing for a Disputed Presidential Election: An exercise in Election Risk Assessment and Management‘. Reading the introduction Foley paints a colorful, but a believable picture of the way that President Trump might tweet through the election night. If President Trump begins to see his lead fall away in a ‘blue shift’. Foley’s words are worth quoting in full:

It is Election Night 2020. This time it is all eyes on Pennsylvania, as whoever wins the Keystone State will win an Electoral College majority. Trump is ahead in the state by 20,000 votes, and he is tweeting “The race is over. Another four years to keep Making America Great Again.”

The Associated Press (AP) and the networks have not yet declared Trump the winner. Although 20,000 is a sizable lead, they have learned in recent years that numbers can shift before final, official certification of election results. They are afraid of “calling” the election for Trump, only to find themselves needing to retract the call – as they embarrassingly did twenty years earlier, in 2000. Trump’s Democratic opponent, _________ (fill in the blank with whichever candidate you prefer; we will pick Elizabeth Warren since at the moment she is the front-runner according to prediction markets), 1 is not conceding, claiming the race still too close to call. Both candidates end the night without going in front of the cameras.

In the morning, new numbers show Trump’s lead starting to slip, and by noon it is below 20,000. Impatient, Trump holds an impromptu press conference and announces:

I’ve won reelection. The results last night showed that I won Pennsylvania by over 20,000 votes. Those results were complete, with 100 percent of precincts reporting. As far as I’m concerned, those results are now final. I’m not going to let machine politicians in Philadelphia steal my reelection victory from me – or from my voters!

Why is it a particular worry for these elections?

There are three key factors that mean this is a real concern this year:

  1. COVID-19 concerns mean many states are making it easier to vote by mail.
  2. President Trump is railing against postal voting as ‘open to fraud’
  3. The key state of Pennsylvania is particularly vulnerable to a very tense and contested vote count.

Finally, the Associated Press normally calls a winner once they are convinced that one candidate had secured 270 of the 538 votes. Normally one candidate will capitulate before the morning. However, this year, the pressure will be on to avoid an early call and not to get caught out by the ‘blueshift’. This is one area to watch for. If we do see a contested election then expect risk assets to sell off heavily. The S&P500 markets may be particularly vulnerable to this outcome.