Trump Re-election Odds Jump, As Does Chance Of Rising Market Uncertainty

Donald Trump’s chances of winning re-election on 3 November are rising. The likelihood of a Democrat sweep – and with it any hope of implementing Joe Biden’s policy platform – have dropped to 50:50, and the chance of a close and contested election – and with it significant market uncertainty – have jumped.

Biden’s Shrinking Lead

Biden’s lead in national polls has continued to narrow. What was a 10 point lead in June has now narrowed to around 6 points. And with two months to go there is still time for it to evaporate even further. Particularly worrying for the Biden camp will be the shrinking lead in swing states. Biden’s lead has narrowed by almost 6 points in Michigan, 3 points in Wisconsin and 1.5 points in Pennsylvania. He remains up by 2.7 points on average across six swing states, albeit down from a peak of around 7 points in July. Biden’s lead remains higher than Hilary Clinton’s at this stage of the 2016 race, but larger leads have disappeared in past elections. And with polling leads narrowing, the uncertainty over shy Trump supporters becomes increasingly important. If polls are consistently overstating Biden’s lead, a very narrow margin leaves an increasing risk of a close election result.

The Trump-Biden TV debates scheduled for 29 September and 15 October will be an important factor in voters’ minds ahead of the election. Biden has also announced he will start visiting swing states from next week and looks to have stepped up his media interaction following concerns that the Democrats could repeat mistakes of 2016.

The double-digit lead that some polls were predicting for Biden seemed stretched, and various factors are likely contributing to the downward slide. The sharp drop back in the number of new COVID cases – from around 60,000 per day through much of July to around 30,000 currently – will certainly be one factor in Trump’s favour, even if he is still perceived to have handled the pandemic badly. Fewer cases will allow the economy to reopen more quickly than would otherwise be the case, raising the likelihood of a V-shaped recovery.

Law and Order Now Central to Trump’s Re-election Bid

Law and order is where Trump is now trying to convince voters he is the only sensible choice. This message was central to his acceptance speech during last week’s Republican convention, with Trump commenting that a Biden presidency would mean ‘no one will be safe’. A Pew poll from 11 August showed 59% of voters listed this as important to their November voting intentions, only a few points lower than the 62% for COVID (Chart 2). The recent violent protests in Wisconsin and earlier protests across the country have given Republicans an opportunity to seize on the Democrats’ more moderate and unifying message on racial inequality, and to portray the party as soft on crime and violence.

Alongside Trump’s perceived better handling of the economy compared with Biden, voters also put Trump 4 points ahead on crime at 43% versus 39%. For handling of the virus, unity and race relations, Biden polls ahead of Trump (Chart 1). Trump’s message seems to be working, with his approval ratings up around 3 points from the late June lows to stand at 44.4%.

Source: Pew Research Centre

Trump Likely to Contest a Close Result

Trump’s refusal to commit that he will accept the election results should he lose leaves an uncertain market outlook under a close result. His claims over mail-in voting fraud will be at the centre of any decision to contest, albeit with Republicans now also making efforts to sign voters up for mail-in ballots. As we discussed in a recent Deep Dive on stock market performance during US elections, election years appear associated with better equity performance, and a Republican win would be more favourable than a Democrat one. But a contested election could well bring an end to the equity rally should a lengthy period of uncertainty lie ahead. And an eventual Trump win may not bring the usual Republican support for US stocks.