US Election countdown: with 8 weeks to go, an ugly market mood as the big debate looms. US Election countdown: with 8 weeks to go, an ugly market mood as the big debate looms. US Election countdown: with 8 weeks to go, an ugly market mood as the big debate looms.

US Election countdown: with 8 weeks to go, an ugly market mood as the big debate looms.

US Election 2024
John J. Hardy

Head of FX Strategy

Summary:  The hotly anticipated presidential debate between Harris and Trump on Tuesday is the best chance for either candidate to tilt the odds between now and Election Day. Elsewhere, the stock market is in a bad mood indeed.


2024 US Election countdown. With only eight weeks to go...

The polls this week say:
Polling numbers are according to fivethirtyeight.com, a polling aggregator.

Oddsmakers this week:

Betting odds numbers are according to polymarket.com, a real-money betting site for event outcomes.

This week: The debate showdown dead ahead. Stocks are nervous.


The US presidential race has shifted in Trump’s favour recently. The shift in the press narrative is louder than anything in the polls or betting odds. The polling aggregators show a modest 0.5% tightening, while the betting odds site polymarket.com saw Trump’s odds tick 1% higher. It’s easy to find articles like this one that question the quality of the polls, suggesting once again that pollsters are underestimating Trump’s chances. And maybe they’re right, although pollsters are aware of their past mistakes and are constantly adjusting their methods. Most importantly, there are two things pollsters can never do: first, they can’t fully register or grasp how motivated key voter groups are to get out and cast their ballot (voter turnout). Second, it is impossible to determine which way the small but decisive slice of undecided voters will tilt as they cast their ballots by mail and in person in the coming weeks up through Election Day. Either way, this is a very, very tight race.

This week’s presidential debate is probably the single event between now and 5 November that can shift the election outcome odds significantly if some slice of voters are suddenly made aware of something in how Trump or Harris performs. More on that below. First, we look at the US stock market and its ugly sell-off in this week’s Chart of the Week. 

Chart of the week: Ugly week for US stocks, especially for big tech

Chart: We’ve sliced and diced some of the key sectors thought to be most sensitive to the outcome of this election and it is nigh impossible to claim that the shifts in the odds are driving investor decision-making just yet. The general unease in stocks, however, could partially be about large players in the market taking a more defensive stance over the great uncertainty that the election brings. Tech stocks have done poorly since Nvidia’s earnings report underwhelmed stratospheric expectations the week before last. Note that the Mag-7 and tech-heavy US Nasdaq 100 index failed to re-approach those all-time highs in the rally off the sudden sell-off in early August. This contrasts with the broader S&P 500 Index, which in the last week of August came within a half-percent of its all-time high before this latest sell-off. Are the super-charged Mag-7 and tech stocks losing their mojo relative to the broader market? One of the frequent signs of a significant market top is when the leading sector stops its outperformance. Think tech  and telecom stocks in 2000, for example, and more recently in early 2022, when the Nasdaq 100 just missed posting a new high in January at a time when the broader market managed to do so. After that, an ugly bear market began that bottomed in October of that year. It’s too early to ring the alarm bells, but we’ll keep a close eye on two levels here in the days to come: the 200-day moving average near 18,130 and the intraday low from 5 August  of 17,435. A breakdown of these important technical levels could suggest a larger adjustment lower in the market action.

Key point on the US Election this week: Harris gets more specific on tax proposals

As we often see in the presidential race, the candidates try to move toward the center as Election Day approaches, trying to appeal as the reasonable and balanced candidate for the undecided, non-partisan voters. Trump is running as fast as he can from appearing too devoutly anti-abortion because a strong majority of Americans (around 60-40 percent) think that abortion should be legal in most cases.

Harris is also rushing to the centre. Her campaign has been running ads that make her sound tough on the southern US border to avoid the impression that the Democrats are soft on the illegal immigration issue. She is also proposing a more modest hike in the long-term capital gains tax than Biden. The current president was looking to hike the rate, currently at 20%, all the way to 39.6% to match the highest income tax bracket. Harris has proposed a more modest 28%, and only for those that have an annual income over half a million USD. 
More interesting still is Harris’ proposed quadrupling of the excise tax on company stock buybacks, from 1% to 4%. This would almost entirely eliminate company preference for share buybacks relative to paying out stock dividends. It’s a transformative shift and would completely alter the landscape of dividend yields on the average US stock. About three-quarters of the companies in the US S&P 500 Index do stock buybacks, which were on the scale of USD 800 billion for the 12 months through this March.

Looking ahead: The big debate and last US economic data ahead of the FOMC meeting 

The anticipation of the Harris-Trump presidential debate couldn’t be greater after Biden’s performance at the first debate so painfully showed the man’s mental decline, making replacing him an existential emergency for the Democratic party. Will Trump let slip comments that disenchant undecided voters? On the other side, will Harris scare off those same voters with incoherent “word salad” answers to simple questions and topics, suggesting she is unfit for office? 

In the markets, last week’s huge sell-off in stocks has nerves on edge. Mixed US employment data was not seen as sufficiently negative to prompt the US Federal Reserve to cut interest rates by a large 0.50% increment at the 18 September FOMC meeting. The market is split about 75-25 that the Fed will only slice 0.25% off the rate. This week, we get US August CPI data on Wednesday, but barring huge surprises this may not spark much volatility, as the Fed is most focused on the labor market, as it strongly believes that inflation is on a comfortable glide path lower.

See you next week!

About the author: John is Saxo’s Chief Macro Strategist, with over twenty-five years’ experience in the financial markets, chiefly as Saxo’s former Head of FX Strategy. He is also an American, having grown up in Houston, TX and has a long-standing passion for following the course of US elections and their place in history since being allowed to stay up late as a young kid to watch the 1980 election results roll in and Ronald Reagan winning the presidency over Jimmy Carter.
 

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