US Election countdown: Is Harris set for a strong win?

US Election countdown: Is Harris set for a strong win?

US Election 2024 5 minutes to read
John J. Hardy

Chief Macro Strategist

Summary:  With Election Day here, Trump’s lead in the betting odds has crashed even as polls suggest an ever-tighter race. What is going on?


2024 US Election countdown. With Election Day dead ahead...

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

The oddsmakers this week say:
Betting odds numbers are according to polymarket.com, a real-money betting site for event outcomes.

This week: Why have Trump’s odds to win dropped so sharply? Also: one market everyone needs to watch after the election.

Something strange has happened over the last week in the US election season: while the polls have continued to supposedly show an ever-tighter race, the betting markets took a hard turn away from Trump and toward Harris, with some prediction markets now even giving Harris better odds than Trump of winning.

This week, we look at what is behind that shift and why Harris may perform far better in this election than most believed likely. Separately, we also look at one market that is flashing a warning signal and should concern everyone, particularly if it doesn’t calm down after the election.

Trump’s winning odds collapse - why? 

In recent weeks, we looked at how the betting odds and even financial markets were increasingly betting on a second Trump administration and even a Republican sweep of Congress that would deliver “Trump 2.0”. Then betting odds suddenly started shifting against Trump’s favour over the last week. Markets that had risen on anticipation of a Trump 2.0, like small cap stocks, cryptocurrencies, and even Donald Trump’s own Trump Media & Technology Group, have also fallen. What was behind this shift? First, the betting odds were suspect in the first place, as several accounts placed identical and very large pro-Trump bets. Now, some arguably “smarter money” has come in recently because the odds had become too skewed in favour of Trump. But if that money is smart, then it must be smarter than the polls, which supposedly show that this race is only getting tighter with every passing day, and we’re all supposed to believe that the closer the popular vote, the easier it is for Trump to win because of the Electoral College system. So that smart money must know something else: could it be signs that Harris has a much better chance of victory in this election? Let’s look into why that might be the case.

How could Harris win and by a stronger margin than most polls predict?

There are two reasons why we might get not only a Harris victory, but one that is a bit stronger than most would have thought likely. 

The pollsters have messed up again. After the polls got things so wrong in 2016 and 2020 (confusing me badly as well, particularly in 2020), this time I have more closely followed discussions among the more insightful and well-connected political commentators and polling researchers on what they are seeing on the ground. In particular, the polling researchers’ discussion of the general paranoia among pollsters at under-estimating Trump, which was especially bad in 2020, suggests that they may have over-corrected and may be over-estimating his strength. This was seen in the 2022 US mid-term election results as well, where the polling overestimated Republican strength.

Surprising turnout patterns among actual voters. No matter how hard they try, pollsters can’t get an accurate reading of what kinds of voters will end up being the most motivated to actually get out and vote. In this election, I suspect that the decisive difference will be women who are reacting against Trump’s persona and the 2022 changes in US abortion law made by Supreme Court judges he appointed. Polling shows that voting differences by gender are the largest ever measured, with women favouring Harris and men favouring Trump. And recent election shows that women are far more likely to vote than men, especially among younger voters.
So if women show up in far greater numbers than men, Harris could win a surprisingly strong victory, although the odds of the Democrats taking the Senate and therefore winning a “Democratic sweep” are still probably low unless the polls are badly off-base. A Harris presidency with a divided Congress is the most “low energy” outcome for financial markets, as it brings the least potential for big policy moves. That might be big relief for one market that is currently flashing red: the US treasury market.

Chart of the week: US treasuries, the market to watch post-election.

 
The chart above shows an ETF that holds US treasury notes that mature in 20 or more years. US Treasury notes are US sovereign bonds issued by the United States government. If interest rates rise, the prices of bonds fall, as does the price of this ETF. In fact, holders of this ETF have last more than 35% over the last three years. 

While the US central bank, the Federal Reserve or “Fed”, sets the rate for short-term borrowing, longer treasury yields are set more by market forces. Interesting to note that the recent high point for long-term bonds (or the recent low in yields) in mid-September occurred on the very day that the Fed started cutting rates for the first time since the pandemic, chopping 0.50% off the short-term borrowing rate. Why? Could this be the market telling us that it is concerned that the Fed is worried more about ensuring that the government can afford to service its debt rather than setting rates appropriately to the levels of inflation and economic growth in the economy? Or was the fall in bonds, or rise in yields, mostly related to the surprising resilience of the US economy? Or how much of the weakness in the bond market had to do with the sharply rising odds from early October of Trump winning the presidency and bringing tax cuts that worsen already massive US deficits? It’s very hard to know the answer – but getting to the other side of the election will make us much wiser on why the US bond market has been so weak and whether it will remain a source of concern for all markets.

The US treasury market and the US election 

A couple of weeks back, when the odds of a Trump victory were rising strongly in betting markets, many observers noted that the markets appeared to be positioning for a Trump presidency and that the sharp rise in US treasury yields was one of the signs of that, as a Trump 2.0 presidency would mean much larger deficits after a new round of Trump tax cuts. Trump’s odds of winning have dropped significantly over the last week, but US Treasury yields continued to surge into the end of last week, even if the situation cooled early Monday. This makes it less clear that the rise in yields has mostly to do with the election and perhaps as much to do with Fed policy and the backdrop of enormous and rising US debt levels. 

Regardless, interest rates are critical to follow for all investors when they are flashing red as they are now. Getting to the other side of the election tells us (and the new president) whether the bond market will remain weak or breathe a sigh of relief – for example on a “gridlock” scenario, in which the president’s party does not have control of both houses of Congress.

The US treasury market is the centre of gravity for global markets, and the world can’t afford a weak treasury market, which not only weakens bond markets globally, but can drive uncertainty and volatility in equity markets as well because it impacts stock valuations. And there are no easy solutions to bringing order to a chaotic bond market, either. Big cuts in government spending to shrink the deficit would tank the economy, while Fed intervention to bring order could blast the US dollar lower and worsen inflation. The bond market will be priority number one for markets and for the incoming president if it doesn’t shape up post-election. 

Brace for impact

That’s it for this week. If the election is tilting more aggressively in favour of either candidate than the polls suggest, markets may begin reacting within a couple of hours of the polls closing in the first big states in the east, starting at mid-night Tuesday night, GMT time. If things are nail-biting close, we may not know the full picture until closer to the weekend.

This article series will continue for two more weeks after the election. 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.

Quarterly Outlook

01 /

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...

Disclaimer

The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Trading in financial instruments carries risk, and may not be suitable for you. Past performance is not indicative of future performance. Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.