Election 2024 Reset: What’s Next?

MIKE TOWNSEND: On Sunday afternoon, July 21, just before 2 p.m. Eastern Time, I was perched on metal bleachers in 95-degree heat holding a golf umbrella for shade as I watched my son play a summer league soccer game when my phone started buzzing like crazy. 

It was alerting me to the news that President Joe Biden had announced via a social media post that he was stepping aside as the Democratic nominee and would not be running for re-election in November. Minutes later, my phone was buzzing again when Biden endorsed the vice president, Kamala Harris, as his choice to succeed him. 

I can't remember a moment in my 31 years in Washington that felt more unsurprising—and at the same time, so utterly shocking. While the writing had been on the wall for Biden's campaign for the past couple of weeks, the historic nature of the decision cannot be denied. No presidential nominee has withdrawn at this late point in the race―just 106 days before Election Day. Sitting on the bleachers, watching my son play what would eventually end up as a not-especially-riveting scoreless tie, I was immediately aware that everything about the 2024 presidential campaign had changed.

This 2024 election has already seen a series of crazy twists and turns. Get ready for what may be the most unpredictable 15 weeks in the modern history of elections.

Welcome to WashingtonWise, a podcast for investors from Charles Schwab. I'm your host, Mike Townsend, and on this show, our goal is to cut through the noise and confusion of the nation's capital and help investors figure out what's really worth paying attention to.  

This still-unfolding story has dominated the news cycle 24/7 since last weekend. Over the past few days, I've done a number of interviews and client webinars about the race. So on today's show, I want to focus on some of the most common questions I'm being asked and dive into the implications of President Biden's historic decision―on the race, on the markets, and on policy. 

So first off, let's begin with the practical side of things. What exactly happens procedurally for the Democratic nomination for president?

President Biden has been the presumptive nominee for months, having won nearly 3,900 delegates during the primaries earlier this year. By deciding not to run, he's releasing those delegates, who are free to vote for anyone at the Democratic National Convention, which begins on August 19 in Chicago. While the president endorsed Vice President Harris, and the party has quickly coalesced around her, nothing is official until the delegates cast their ballots and she, or someone else, wins a majority of those votes. 

On the first ballot at the convention, only the 3,949 delegates vote. If no candidate wins a majority, then the so-called "superdelegates," which total 739 party officials, from members of Congress to former elected officials to members of the Democratic National Committee, can begin voting on the second ballot. Votes continue until someone emerges with a majority―and that person is the party's nominee. 

One question that keeps coming up is, "What about all the ballots―how does this change impact what's on the ballots in all 50 states?" It's important to note that no state prints its ballots before the two conventions are over. Those conventions are where the nominees are officially determined and then those names will appear on the ballot in every state. 

There is one quirk, and that's an Ohio state law that requires the nominee to be chosen by August 7 in order to be on the ballot. Though the state legislature approved a change to that requirement, the change doesn't take effect until September 1. That bit of legal murkiness has caused anxiety among some Democrats.

And that has opened up the possibility that the Democrats will hold an electronic roll call vote among delegates prior to the convention to formally choose the nominee and ensure that there are no issues with the Ohio ballot. This was the plan when Biden was still in the race, and it seems likely that the electronic vote will take place in early August with Harris as the nominee.

The Democratic National Committee was set to meet on July 24 to finalize all of these details.

But the details won't end up mattering that much, because of how quickly the party has coalesced around Vice President Harris as the choice. Potential challengers, including governors Gavin Newsom of California, Gretchen Whitmer of Michigan, Wes Moore of Maryland, Josh Shapiro of Pennsylvania, and others, have all endorsed Harris. By late on Monday, Harris had secured the support of a majority of the convention delegates. She also saw an enormous burst of fundraising in the first 48 hours after Biden's announcement, as Democrats opened up their wallets, donating more than $100 million in a frenzy of support for the new candidate.

Any concerns that there would be some sort of disorganized free-for-all on the convention floor in Chicago next month, with multiple candidates jockeying for endorsements and making backroom deals with delegates, have quickly disappeared. 

Among Republicans there has been conversation about challenging this process, arguing that Democrats are ignoring the will of primary voters. But it's important to remember that the choosing of a party nominee is not governed by federal laws. Each party has its own process and rules, with delegates from every state ultimately holding the power to choose the nominee. And it is the states themselves that have laws about who can be on the ballot in that state. The states accept that the candidate nominated by each party's convention is the name that appears on the ballot. Since the Democratic National Convention hasn't happened yet, the nomination has not been formally accepted, and there is no legal action that can be taken to force someone to be on the ballot. 

Another key question is the ability of Harris to access campaign money. The Biden/Harris campaign reportedly had nearly $100 million on hand at the end of June. Since Harris was already listed on the campaign organizational documents, it's widely assumed that she can access that money right away. Democrats registered a name change of the committee from Biden for President to Harris for President within hours of the president's withdrawal from the race. 

Republicans have threatened to challenge the legality of all this, arguing that since neither Biden nor Harris were technically the official nominee yet, the transfer of money may not be automatic. Expect the Trump campaign to challenge this to the Federal Election Commission, better known as the FEC. But the FEC is equally divided, with three Republicans and three Democrats―so it may not be able to reach a decision on a challenge quickly. Such a challenge would then go to the courts, where it could take a long time, as with any court case. Given that there are only 15 weeks until Election Day, it may be difficult to resolve any case before then.

And even if a court were to find that Harris should not have access to the campaign money, that money could be donated to the national party and to super PACs supporting Harris's candidacy. So all these money questions are not likely to be an issue for the Democrats in the campaign.

The overriding next step for Harris is choosing a running mate, which I expect to happen very quickly, as in any day now. Among the leading contenders are reportedly Pennsylvania Governor Shapiro; North Carolina Governor Roy Cooper, who is term-limited and not running for re-election; Kentucky Governor Andy Beshear, a Democrat who has twice won statewide election in a solidly red state; Transportation Secretary Pete Buttigieg; and Arizona Senator Mark Kelly, a former astronaut whose wife, former Congresswoman Gabrielle Giffords, was shot and severely wounded in an act of political violence during a meeting with constituents in 2011.

There are lots of considerations for Harris. Running mates are usually chosen to balance the ticket in some way, such as gender, age, or geography. They need to be strong fundraisers, good communicators, perhaps have expertise in policy areas that the presidential candidate is weaker in. It will be the highest-profile decision of Harris's first days as the presumptive nominee. 

But historically, vice-presidential candidates don't have a big impact on the outcome of the presidential race. Voters choose between presidential candidates, and while the picking of a running mate tends to provide a shot of energy, financial support, and enthusiasm into a campaign, it rarely has any real impact on the actual voting that comes weeks later. 

Let's move on to the implications for the race itself. 

Republicans just finished their convention last week, where former President Trump accepted the nomination and tapped Ohio Senator J.D. Vance as his running mate. The convention was successful in uniting Republicans behind the ticket, and Republicans emerged from the convention feeling pretty confident about their chances in November. 

The change in opponent coming just three days after the closing of the convention was obviously not a complete surprise, but it clearly slowed some of the Republican momentum coming out of the convention, and it will change Republicans' strategy going forward. The switch to Harris takes away what had been Trump's biggest advantage in the race so far: the ability to focus attention on President Biden's age and mental acuity. Now Trump is suddenly the old candidate in this race.

An interesting question that has come up is whether there will be debates this fall. At the moment, there is a second debate scheduled for September 10. But that was an agreement directly between the Biden campaign and the Trump campaign to have two debates, the first of which, on June 27, turned out to fundamentally alter the entire race. Trump has already raised the idea that the second debate should move from ABC to Fox―something that would have to be re-negotiated between the two camps and the networks. I'm skeptical about whether Trump and Harris will debate at all this fall. 

Republicans are already working hard to define Harris on their terms. Despite running briefly as a presidential candidate in the 2020 campaign and serving as California attorney general, a U.S. senator, and now vice president, the reality is that Harris is not especially well known to voters. Vice president might be the most thankless job in government, and few voters pay much attention to what the vice president is doing. Expect Republicans to come out strong in their effort to cast doubt about Harris.

Whether Republicans will be successful in those efforts remains to be seen. But it seems likely that the race will tighten. Democrats who were unexcited about Biden are re-energized by the switch to Harris―and that should provide at least something of a bump in the polls. But I'm waiting until the beginning of August before really looking at the polls. I think it will take that long before polls can reliably sort through everything that has happened in the last few weeks and give us a real sense of where the race stands.

I've been talking for months about how the presidential race will be decided by the so-called "double-haters," voters who dislike both Trump and Biden. Will there be as many double-haters now that it's Kamala Harris and not Joe Biden at the top of the Democratic ticket?

A related question is how the change in candidates by the Democrats will affect the third-party and independent candidates. Green Party candidate Jill Stein and independent candidate Cornel West, a progressive intellectual, have been drawing small numbers in the polls, but even small numbers matter in the context of a very close race. Will voters who have been thinking about Stein or West give Harris a closer look now that she appears to be the likely Democratic standard bearer?

And what will happen to the candidacy of Robert F. Kennedy, Jr., the independent candidate who has been drawing an average of 8.5% of the vote in the RealClear Politics aggregation of polls. Kennedy was getting a lot of support from those double-haters. I'll be watching whether his numbers change significantly over the next few weeks with Biden out of the race. And there have even been reports that Kennedy discussed dropping out of the race in exchange for a position in a potential Trump administration.

Biden's withdrawal from the race is also likely to reset the battles for control of the House and the Senate. The chances of a Republican sweep of the White House, the Senate, and the House this November are lower than they were last week. 

But what about those all-important congressional races?

Republicans remain in a strong position to take control of the Senate, and to some degree, it's simply a numbers game. While Democrats hold a narrow 51-49 margin in the Senate right now, there are 23 Democratic seats up for election in November and just 11 Republican seats. Republicans only need to flip two seats to gain the majority. And it's nearly certain that they have one flip already. Senator Joe Manchin from West Virginia, a moderate Democrat who is now an Independent, is not running for re-election. Governor Jim Justice is the Republican nominee for the open Senate seat in West Virginia, and he's a virtual shoo-in to win in a ruby-red state. Assuming Jim Justice wins, Republicans need to pick up only one more seat―and there are competitive races in at least a half-dozen states, including Arizona, Michigan, Montana, Nevada, Pennsylvania, and Wisconsin, where Democrats are locked in tough battles to defend their seats. 

On the other side, none of the 11 Republican-held Senate seats are considered to be highly competitive, so there aren't likely to be many opportunities for Democrats to offset any losses.

Where Biden's withdrawal from the race may have a bigger impact is in the battle for control of the House of Representatives. One of the key reasons that there was an uprising among Democrats on Capitol Hill in the weeks since President Biden's disastrous debate performance on June 27 is because there was growing concern that Biden would be a drag on Democrats further down the ballot. Democrats are hoping that the surge of energy brought about by the change at the top of the ticket could benefit candidates at the congressional level and even down to the state level.

Republicans hold a 220-212 majority in the House right now, with three vacancies, so Democrats would need to flip just a handful of seats in November to win the majority. The non-partisan Cook Political Report, which analyzes House races, ranks 22 House seats as toss-ups: 11 are currently held by Republicans, and 11 are currently held by Democrats. The outcomes in those races will likely determine which party holds the majority next year. 

The House looks to be a true toss-up right now. That's an aspect of this election that bears watching closely in the weeks ahead. 

One more question that I'm getting from investors: What does all of this mean for the markets?

To the degree that markets had begun to price in a Trump victory in November, that sentiment is likely to wane for now, as the race appears likely to tighten. Some market analysts are already seeing signs of the unwinding of the so-called "Trump trade," which saw traders and investors begin to make moves in anticipation of a Trump victory, picking stocks they thought might benefit from an environment of lower taxes and lighter regulation, along with higher trade tariffs. A Trump win was also seen as likely benefiting cryptocurrency.

In the bond market, concerns that Trump's policies would increase the federal deficit and that tariffs could re-ignite inflation contributed to falling Treasury prices and rising yields. But all that seems less certain now.

And that's really the upshot for the markets: President Biden's withdrawal from the race injects a new element of uncertainty into the election. And markets can get jittery when there's uncertainty.

And this point gives me a chance to remind every investor that, historically, markets don't care much about the election itself. And markets don't care much at all about the daily micro-dramas of a political campaign, not even when it's an unprecedented drama involving a late decision by one candidate not to run. 

Over the next 15 weeks until Election Day, the markets will have moves in all sorts of directions. But almost all of those moves will be the result of earnings announcements, economic data, and the Federal Reserve's decisions and timing on interest rate cuts. That's what the market is really focused on, not who Kamala Harris names as her running mate.

This election has been notable for the level of emotion it sparks in voters. Last weekend's developments will undoubtedly spark more emotions―happiness, anger, worry, frustration, anticipation, and more. But as listeners have heard me say before, those emotions are a terrible mix with investing decisions. There is no "right way" to trade on this news or any election news. The best thing to do is stick with your financial plan and talk to your financial consultant if you are anxious about how the market might react to the election. 

While the big changes in the Democratic ticket deserved to be addressed at the top of today's episode, it doesn't mean that there aren't other important issues in Washington that I am watching. 

First, outside of the drama surrounding President Biden, the focus on Capitol Hill this week has been on the assassination attempt on former President Trump less than two weeks ago.

On Monday, Secret Service Director Kimberly Cheatle testified before the House Oversight Committee, calling the assassination attempt the "most significant operational failure of the Secret Service in decades." But she infuriated Republicans on the committee by repeatedly refusing to answer their questions in detail, citing the ongoing investigation. By the end of the hearing, members of both parties were calling on her to resign, and on Tuesday morning, she did so.

Monday's hearing was the first of three this week that focused on the tragedy in Pennsylvania. FBI Director Christopher Wray testified on Wednesday about his agency's role. On Tuesday, House leaders announced they would create a bipartisan task force, with seven Republicans and six Democrats, to coordinate and oversee the effort to understand the security failures and make recommendations for changes going forward.

The investigations are still in the early stages, but there's a natural inclination to push for answers, find someone to blame, and take action. It may be a while before we really know what went wrong. The focus needs to be on what steps can be taken to ensure nothing like this happens again, not in the next 15 weeks, not ever. 

Second, a bipartisan group of senators announced recently that they had reached agreement on legislation that would ban elected officials from trading stocks.

This is an issue that has been kicking around for the last couple years, following a series of revelations about how government officials, including members of Congress, were using information they learned in their roles to trade stocks in their personal accounts. There was an outcry from the public, and last year there were multiple bills introduced to restrict the ability of members of Congress and their families from trading on that information. But the momentum had really waned on that effort.

Now this bipartisan agreement gives it a boost. The bill put forward earlier this month would immediately ban members of Congress and their families from trading in individual stocks, commodities, futures, and other types of investment products. It would require divesting from current holdings over the next couple of years. It would permit investments in mutual funds and exchange-traded funds. 

This is an idea that has overwhelming popular support―but it would still require members of Congress to vote against their own interests. While there's renewed momentum, we'll see whether both the House and the Senate can make that choice.

And finally, there was an important announcement last week from the IRS that ended years of uncertainty for individuals who have recently inherited an individual retirement account, better known as an IRA.

The issue stems from the SECURE Act, a retirement savings law passed in 2019. That law said that individuals, other than spouses, who inherit IRAs would be required to empty that account within 10 years. Previously, heirs could spread out withdrawals from an inherited IRA over the course of their lifetime. 

When the new law became effective in 2020, it was widely assumed that heirs could distribute those assets on whatever timeline they chose, as long as the account was empty by the end of the 10 years. An heir could take a bit out of the account each year, or every other year, or wait nine years and 364 days and take it all out on the last possible day. 

However, the IRS proposed regulations that indicated that heirs must take a required distribution each year. The IRS was flooded with complaints that heirs did not know they were supposed to be doing that. The IRS then issued a series of notices basically saying that heirs who had not been taking the required minimum distribution in 2020 or 2021 would not be penalized for it. While the rule remained in limbo, the IRS extended that decision for 2022, 2023, and again for 2024. 

On July 18, the IRS issued final rules on the situation and confirmed that, beginning in 2025, any non-spouse who inherited an IRA beginning in 2020 and going forward must take annual required distributions each year on the way to emptying that account by the end of the 10-year window. 

However, the IRS did reiterate that no one would be penalized for not taking those distributions in 2020 through 2024. At the same time, the IRS did not extend the timeline for those heirs. So if you inherited an IRA in 2021 and you’ve not taken any distributions, you'll have to do so on an accelerated schedule over the next seven years, from 2025 to 2031, ensuring that account is empty 10 years after you inherited it.

If it sounds confusing, it is. So if this situation applies to you, make sure you contact your financial advisor to understand exactly what these new rules mean for you.

Well that's all for this week's episode of WashingtonWise. We're going to take a bit of break, and we won't have any episodes in August. We'll be back with a new episode on September 5. So take a moment now to follow the show in your listening app so you get an alert when that episode drops and you don't miss any future episodes. And I'd be so grateful if you would leave us a rating or a review—those really help new listeners discover the show.  

For important disclosures, see the show notes or schwab.com/WashingtonWise, where you can also find a transcript.  

I'm Mike Townsend, and this has been WashingtonWise, a podcast for investors. Wherever you are, stay safe, stay healthy, and keep investing wisely.