Head of FX Strategy
Summary: In this article, we sort through important dates in this final sprint phase of the absurdly long US presidential election cycle. Historically, we have seen significant shifts in the polling in the final weeks leading up to the election. As well, we consider factors that can change the odds between now and Election Day on November 3rd.
In this article, we sift through key event risks on the path to the election and consider factors that might change the current, rather clear picture from the polls that Biden is set to win by a solid margin, and likely for the Democrats to take the Senate as well. That Democratic “clean sweep” scenario is critical if Joe Biden wants to make good on any of his platform promises as partisan US po. In Part 2 of the US Election Primer, we will delve deeper into the market impacts of various possible outcomes, and especially the risks around the chaos that is likely to take shape on Election Day and in the days after as it is likely that the losing side will challenge a close vote – in Trump’s case on charges of mail-in voting fraud, especially as Democratic voters are more likely to vote by mail, and on Biden’s side if he wins the popular vote by an even larger margin than Clinton but loses the electoral college vote by a narrow margin and there are issues with whether all mail-in votes have been counted.
The markets ahead of the election
Market have shown surprisingly little energy or signs of dramatic uncertainty ahead of this election, although the US dollar has sold off somewhat and the median US equity has traded sideways for the better part of three months now. As noted above, there is a widespread consensus that the election risks being a contested one, but a badly contested situation may only show up in the market movements after the election itself (in the form of weak equity markets and weak risky currencies, and a firm US dollar and even firmer Japanese yen). If it becomes increasingly clear that Biden will win and take the Senate as well, US equities may face a significant headwind, as might the US dollar, but the bulk of volatility is likely to unfold only after Election Day in our view, and we’ll break down the likely winners and losers in different scenarios in other scenarios in other articles you can find on our US 2020 Election landing page
Current state of play: polls suggest a strong Biden victory and Democratic Senate
Oddsmakers and the US polls averages are in two rather different places as we lurch into this final sprint into the November 3 US presidential election. The betting odds are giving Biden only a slight lead over Trump, while a noted pollster like Nate Silver of fivethirtyeight.com gave Biden much more solid odds of around 70/30 recently. But what about the polls themselves? News organizations like to maximize the drama and uncertainty, and there is no doubt that some polls got the situation very wrong back in 2016. But as polls generally stand right now in mid-September, they suggest that Biden is poised to administer a thorough drubbing of Trump and that Democrats are set to take the Senate back as well.
Polls more stable than in 2016
Still, it’s important to recognize that a number of important factors can yet shift the likelihood of election outcomes even if polls have been far more stable than the roller-coaster swings of the final sprint in 2016. One factor that may be a stabilizing one in polls relative to 2016 is that Trump is now a known quantity and the undecided vote, according to some polls, is perhaps half of what it was than in 2016, if still a sizable 10%.
The peculiar US electoral college system determines outcomes, not the popular vote
Trump won the 2016 election despite losing the popular vote by 2.1% due to the US electoral college system, in which all electoral votes for each state go to the majority winner of that state (as always with exceptions – in this case, Nebraska and Maine). The Republicans have a built-in advantage in that respect because rural voters tend to vote Republican – and there are more rural states than populous states and each state, regardless of population, gets two extra electoral votes representing the two senators from that state.
The Wikipedia entry on the US electoral college system features the illustration below that shows how a voter from Wyoming, the least populous state, has almost three times more power in the electoral system than the voters from California, the most populous state. Long time observers know that the US election is not determined by the aggregate popular vote nationally, therefore, but only in a clutch of key battleground states where the race is close. In 2016, a total of barely more than eighty thousand votes spread over Michigan, Wisconsin and Pennsylvania decided the US election in Trump’s favour, an unbelievably slim margin of victory.
Graphic: The graphic above shows how many people there are in each US state for each of that state’s electoral votes and reveals that a Wyoming popular vote weighs some three times what a California popular vote does in the US elections, explaining how the majority of rural states and narrow wins in a few key battleground states gave Donald Trump the 2016 election despite his losing the popular vote nationally by 2.1% - the worst result for an election winner ever.
Key election dates ahead of the November 3rd Election Day.
The US election actually unfolds over a surprisingly long time scale, with early voting – even in person early voting, not just mail-in voting – starting as early as late September in a number of states, even if the majority of voting will still happen on Election Day. Some states already opened for mail-in voting in early September.
September 18-19 – earliest in person voting starts in states representing more than 10% of total electoral votes, including possible battleground states Michigan and Minnesota. What to watch: any reporting suggesting particularly heavy turnout. More than half of Americans plan to vote early in person or by mail, according to at least one survey, a massive rise relative to prior elections.
September 29 – First presidential debate – What to watch: can Biden hold his own against Trump’s bullying style? The buzz from Trump supporters is that Biden is not cognitively fit to serve as president and can’t speak off-teleprompter. This debate will serve as an enormous chance for Biden to put those fears to rest if he can stand up to a withering couple of hours in the spotlight. The polling in the wake of the debate will need close scrutiny for any notable shifts.
October 7 – The lone Vice Presidential debate – What to watch: this should prove a sideshow, but as some have questioned Biden’s cognitive state and even whether he is fit to serve a full four-year term, the debate could get more attention than normal if Kamala Harris makes any gaffes or has any negative viral moments of any sort – but her chief liability in this election may be more that she doesn’t inspire the progressive left sufficiently to get out and vote rather than that she will scare fence-sitters or centrists.
October 14 – States representing majority of electoral votes have opened for early voting by this point
October 15 and October 22 – The second and third presidential debates – What to watch: in addition to polling numbers in the wake of these, these will be interesting to watch for viewer engagement relative to the 2016 cycle, etc.
October 24 – Florida opens for early in-person voting. What to watch: Florida is open with how many people have showed up to vote in early voting – so the state may offer an early opportunity to get a look at the strength in voter turnout. Florida is a critical battleground state and Democratic hopes rely strongly on overall voter turnout and taking this state and/or the three key states that decided the election in 2016 for Trump: Pennsylvania, Michigan and Wisconsin.
November 3 – Election Day. Plenty more to come in Part 2 of our US Election Primer on how election day will unfold and why it will prove challenging this time around due to the widening use of mail-in voting due to the COVID-19 pandemic. The fact that the virus has been politicized and polls suggest that Democrats are far more likely to vote by mail means that early results nationally will inevitably show a Republican lean of some magnitude. We can all imagine President Trump crying foul as results grind against him hour by hour and day by day as mail-in votes are tallied. As we weill discuss in Part 2, the risk is virtually certain of a period of chaotic post-election uncertainty of unknown duration, with the losing side challenging the results and unwilling to concede. In the worst instance, this could lead to public unrest and even a constitutional crisis.
Issues that could shift the odds between now and Election Day.
Below we look at identifiable factors that can shift the polling odds or the outcome between now and Election Day.
Bad polling and/or signs of voter apathy – the frustrated progressive left is a major factor in this election as a significant minority of Democratic voters are progressive leftist leaning and don’t feal they have a dog in this election hunt. This is especially the case among younger voters who don’t usually turn out to vote in large numbers anyway. And while this cohort of voters is very much a Trump-hating one, any sign that their indifference to Biden and dislike of Trump aren’t sufficiently motivating factors in rocking the vote could mean a surprisingly weak Democratic turnout. Weak voter turnout among African Americans in particular was a key factor that may have cost Hillary Clinton the election in 2016.
COVID-19 and vaccine – President Trump is leaning hard on pre-announcing the success of a vaccine, but the time-line looks very short for any notable medical development on COVID-19 before the election, and one of the leading vaccine candidates, one developed by AstraZeneca together with Oxford University, saw its Phase III trials halted due to a single adverse reaction. A powerful further fade in mortality and case count could, however, give Trump back some of the popularity that his handling of the outbreak clearly cost him in the spring and summer months.
Debates – see the dates above for the three presidential debates this year. A very large slice of US voters have thoroughly made up their minds well ahead of the elections, but there is always a slice of voters of some size that will be motivated to either make up their mind for one or the other candidates or to not vote at all, and the debates are the premiere chance to see the two candidates in an only partly scripted performance and having to respond to challenges in real time. Particular focus in the debates will be on Joe Biden due to charges that he suffers from cognitive decline, with Presidential Trump’s campaign even actively pursuing that angle.
The economy – some portions of the US economy have come roaring back to life on the unprecedented stimulus rolled out in the wake of the COVID-19 pandemic. July retail sales managed to even post an all-time high and the stock market likewise did so in August. However, further stimulus from the government has been drastically reduced as of August 1 as Federal unemployment benefits were cut in half on that date. There is also the “K-shaped” recovery narrative to consider regardless of what the headline data are saying. The K-shape is in the diverging prospects for Americans in the wake of the pandemic, as the wealthy and monopoly companies are enjoying most of the stimulus and are better off than ever while the low-middle income and small and medium enterprises (SME’s) are doing worse. How K-shaped narrative affects election outcomes is a challenge to discern, but certainly signs of weakening momentum.
Geopolitical conflict / showboating – no predictions here and very low odds that something happens, but a geopolitical situation could fall into Trump’s lap that helps or harms his popularity – almost every crisis brings with it a shift of attitude toward the political leadership – usually rallying around the current leadership but possibly the opposite if the current leadership is viewed as guilty for causing the situation or not doing enough about it (think Carter and the Iran hostages as the most obvious example, but to a degree if Trump loses and especially if by a small margin, many will attribute his response to the COVID-19 crisis as a strong contributing factor).
Bond. Long Bond(s)
With real rates being too positive, we see three scenarios: Opportunity to lock in rates at cycle high, government overreach to keep the economy afloat or a complete reset of the economy.
Steen Jakobsen,
Chief Investment Officer
Is a bond bull market ahead? Inflation still poses a risk for investors, but the moment for increasing duration to your portfolio may be approaching towards the end of the year, when central banks might be forced to cut interest rates.
Althea Spinozzi,
Senior Fixed Income Strategist
The furious rate hike cycle has brought gains in the US dollar, but with stagflation risks in Europe and the UK and weakness in the Chinese economy, USD may have more room to run. But a strong dollar could also have repercussions for US growth, emerging markets and commodity prices.
Charu Chanana,
Market Strategist
With the cost of capital rising painfully, stagflation fears are back, illuminating the fragile state of the green transformation, while giving a tailwind to nuclear power, and threatening the growth of AI-related stocks.
Peter Garnry,
Head of Equity Strategy
With supply tightness not only in energy but all commodities, the momentum in commodity prices may continue, pressuring central banks to lower real rates. That could be a good setup for precious metals, including gold, silver and potentially platinum as well.
Ole S. Hansen,
Head of Commodity Strategy
As the pandemic showed, even the US Treasury can experience seismic shifts. With the government increasing the pace of issuing bonds to support fiscal spending, the complex Treasury market and regulatory constraints could spark a liquidity event.
Redmond Wong,
Market Strategist
The tide has turned for bonds. Given the current yields, bonds have become an attractive investment, with added benefits including lower risk than stocks, increased diversification and a steady stream of income unaffected by economic changes.
Peter Siks,
Investment Coach
