Forget The ‘Blue Wave’, JPM Says ‘The Democratic Tide Actually Went Out’

Assuming no unexpected reversals from state recounts or voter fraud litigation, last week’s Biden election win was historic – for the first time in 100 years, a challenger unseated an incumbent President at a time of strong economic and market tailwinds.

The rarity of such an outcome tells you how hard this is to accomplish. However, as JPMorgan Asset Management’s Michael Cembalest points out in his latest note, when looking at the full scope of Federal and state results, the election delivered a clearer referendum on the President himself than on policy issues dividing Democrats and Republicans.

The chart below shows partisan control of the Senate, the House, Gubernatorial positions and State-level Senates and Houses (i.e., state legislatures). Forget about a “Blue Wave”: according to our Partisan Balance index, the Democratic tide actually went out a little bit, falling relative to pre-election levels.

As Cembalest details, the chart illustrates the major party shifts in the 20th and 21st centuries:

  • the decline in the Democratic share from its enormous level during the Great Depression;

  • Eisenhower’s popularity in a country not yet ready for Adlai Stevenson’s liberalism;

  • the two big post-war Democratic waves during the JFK/LBJ Great Society era and the Nixon impeachment era;

  • the GOP rebound following the Reagan Revolution in the 1980’s and Gingrich’s “Contract with America” in 1994;

  • the powerful but very temporary Obama wave in 2009;

  • and the anti-Trump reaction during the 2018 midterms.

A divided government would still give President Biden room to maneuver on energy, immigration, healthcare, trade, net neutrality and antitrust. However, while there might be some personal or corporate tax increases tacked onto an infrastructure bill, the huge tax/spending expansion that Biden ran on is probably off the table unless Democrats can pull off both victories in Georgia runoff elections, and unless Democrats decide to jettison the Senate filibuster despite not having a majority in the Senate (they would need to rely on VP Harris for tie-breakers).

However, as the chart above shows, the rising use of the Senate filibuster over the last century by both parties, may explain the hesitance by some to scrap it.