Why the loss of RBG could hurt the fragile economic recovery

At a minimum, the loss of RBG is yet another wild card for investors, CEOs, small business owners and consumers already challenged by enormous amounts of uncertainty.

The Supreme Court vacancy is shaking up the previously stable battle for the White House, not to mention control of the US Senate. Political crystal balls just got much murkier, with differing opinions on which party benefits the most from the developments.

Worse, the fight over how and when to replace Ginsburg, a hero of Democrats, will suck up oxygen in Congress at a time when the economy is screaming out for more emergency aid from Uncle Sam.

"We don't see how the parties can reach a stimulus deal in this environment," Jaret Seiberg, policy analyst at the Cowen Washington Research Group, wrote in a note to clients Monday. "Failure to enact the Phase 4 stimulus will damage the recovery."

After bottoming out at 59% in April, the CNN Business Back-to-Normal Index steadily rebounded this summer to nearly 80% in early September. However, the index, which was created with Moody's Analytics and measures dozens of national and state indicators, has retreated back to 76%.

Wall Street is rattled

The chances of a major stimulus package getting through Congress were already low. But a complete collapse in talks would guarantee no more help from the federal government until after the election, or more likely early next year, even though the recovery from the pandemic is faltering. That means more small businesses will likely close their doors, state and local governments may have to lay off workers, household spending could weaken and defaults may rise.

"The unexpected death of Supreme Court Justice Ginsburg adds another element of risk to the timing of the [stimulus talks] outcome, and could weigh on the market overall in the near term," Michael Wilson, chief US equity strategist at Morgan Stanley, wrote in a note to clients Monday.

Investors backed away from stocks Monday on concerns about rising coronavirus infections around the world and jitters about the prospect for a stimulus package. The Dow was down 3%, or around 800 points, during afternoon trading.

Healthcare stocks suffered some of the steepest losses Monday over concern that a more conservative Supreme Court could kill Obamacare. That would hurt revenue for health insurers and hospitals alike. Hospital giant Tenet Healthcare plunged 14% Monday, while insurers UnitedHealth and Anthem fell 5% apiece.

Bullish or bearish for Corporate America?

If -- and this is a big if -- President Donald Trump successfully replaces Ginsburg, it would result in a 6-3 conservative majority in the Supreme Court. At first blush, that would seem to be bullish for Wall Street and Corporate America. That's because conservative justices are viewed as more apt to shoot down aggressive regulation being challenged by banks, fossil fuel companies and other sectors.

"All else equal, it may seem like having a large conservative majority on the court would be positive for business and therefore share prices, because it would reinforce the already antiregulatory and pro-capital tendencies of the Court for the foreseeable future," Paul Hickey, co-founder of Bespoke Investment Group, wrote in a note to clients.

However, Hickey noted that is a "simplistic" view because a successful Trump nomination could set off a significant chain of events.

Specifically, Democrats have warned they could retaliate because they feel Republicans are being hypocritical after refusing to hold a hearing on President Obama's early 2016 nomination of Merrick Garland.

For instance, if Democrats win the Senate, some have called for ending the filibuster and "packing the court" with new justices. Others are pushing for Democrats to grant Puerto Rico and Washington statehood, further shifting the balance of power in Congress and the Electoral College. Those steps could ultimately lead to a more progressive federal government.

"Taken together, the action and reaction are hard to game out," Hickey wrote.

Scrambling the 2020 race

That's not to mention the impact on the 2020 election, which up until this point looked remarkably stable.

Some have argued that the Supreme Court vacancy is a big advantage to Trump because it will fire up his conservative base and, crucially, shift the conservation away from the pandemic.

Others say the opposite, pointing to the ability to turn out Democratic voters as well as the historic fundraising sums for left-leaning groups.

Underscoring the uncertain impact on the election, Trump's chances in the prediction markets have barely budged. A bettor can pay 45 cents to win $1 if Trump wins the White House, according to PredictIt. That is unchanged from Thursday, the day before Ginsburg's death.

The clearest conclusion we can draw from the Supreme Court vacancy is that it adds yet one more question mark to a year marked by deep uncertainty. And the year isn't over yet.