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Summary
- Vice President Kamala Harris is polling ahead of presidential candidate Donald Trump but remains within the margin of error.
- Harris’ policies involve stronger competition policies as well as social spending to be funded by unspecified taxes on wealthier Americans and businesses.
- Even if Harris wins the White House, she will likely face a split Congress. This suggests limited fiscal consolidation.
Market Implications
- I still expect the Fed to cut in September.
Harris Ahead but Still Within the Margin of Error
The Democratic convention ended on 22 August. A post-convention boost is not yet apparent, possibly because of polling implementation lags. Harris remains ahead in the polls and in betting markets, though by a small margin (Charts 1 and 2).
Harris has also caught up in swing states though remains behind Trump in Arizona, Georgia, Nevada and North Carolina and ahead in Michigan, Pennsylvania and Wisconsin (Charts 3 and 4). Harris is within 2% of Trump (i.e., within the margin of error) in all swing states.
Broader popularity measures also show Harris improving her position. Her favorability rating has far surpassed Trump’s and is now almost positive (Chart 5). Meanwhile, her share of Google searches has largely kept up with Trump, showing strong public interest (Chart 6).
Harris’ fundraising has been spectacular. In July alone she raised $204mn, over four times more than the Trump campaign (Charts 7 and 8). On 26 August, the Harris campaign said that since launch it has raised $540mn (i.e., an additional $336mn).
Trump could use the wealth generated by listing his social media platform, Truth Social. Trump’s holdings are worth about $2.7bn at current prices. The post-listing six-month lockup expires on 20 September, if the stock stays above $12 for any trading days starting 22 August (the stock has been above $21.7 since then, Chart 9). However, the stock price has been volatile and signs Trump is liquidating his holdings could trigger a selloff. The company reported losses of $16.4mn on sales of $0.8mn in Q2.
Harris’ Economic Program Will Require Congressional Support
What we know of Harris’ economic plans so far shows she is very focused on voters’ cost of living concerns. On 16 August she released a list of measures:
1). Lowering home rental and ownership costs through:
- Boosting housing supply through additional tax incentives and ‘cutting red tape.’
- Lowering rents through reducing tax incentives for large scale institutional investment in housing and supporting competition in the rental market through algorithm regulation.
- 25,000 subsidy for first-time home buyers.
2). Lowering drug costs and relieving medical debts through:
- Further capping drug costs.
- More aggressive negotiations with drug manufacturers.
- Crack down on Pharmacy Benefit Managers abusive practices.
- Medical debt cancellation.
3). Lowering grocery costs through tougher competition policy, including the ‘first ever Federal ban on price gouging on food and groceries’ (she did not specify what it would consist of).
4). Tax cuts for the middle class, including through expanding the child tax credit and the earned income tax credit.
The Committee for a Responsible Federal Budget estimates this would raise spending $1.7tn over 10 years. The campaign has said this would be paid for through higher taxes on large corporations and wealthier Americans but has not provided details.
The bottom line is most of Harris’ agenda will require Congressional support, which begs the question of how well the Democrats are doing in Congressional races.
Split Congress Most Likely for Harris
Polymarket betting odds show that, should Harris win, she would most likely face a blue House and a red Senate (Table 1). Also, risk of a red Congress would be very low.
This is striking because most pollsters predict a red Congress as more likely than a split or a blue one. I think betting odds are probably closer to the truth than pollsters (i.e., a split Congress is more likely than a red one). First, generic Congressional polls are close and the ‘Kamalamania’ has sharply improved Democratic polling (Chart 10).
Second, the current Republican House majority is slim. They hold 220 seats to the Democrats 211 (with four vacant seats). With a few more seats the Democrats could flip the House, which is not unlikely given the Harris campaign’s strong momentum.
Also, the Democrats are likely to struggle to keep their Senate majority. Republicans hold 49 seats, the Democrats 46 seats, and four independents caucus with the Democrats (one seat is vacant in New Jersey, a deep blue state).
34 seats will be contested in the election, of which Republicans hold only 11 and these are either in ‘solid’ or ‘likely’ Republican states (the latter includes Florida and Texas).
By contrast, 23 Democrat-held seats will be contested. Of these, one is in West Virginia, a deep red state where the latest polls show the Republican candidate 30ppt ahead of the Democratic one.
Therefore, a best-case scenario for the Democrats is winning all remaining 22 seats, which would split the Senate 50/50. However, Harris winning the White House would give them the tiebreaking vote through Vice President Tim Walz.
Yet the Democratic senate seats of Michigan, Montana and Ohio are considered tossups. Polling shows the Democrats ahead in the Michigan and Ohio races but behind in the Montana one (Charts 11 and 12).
On balance, the Democrats appear more likely to lose the Senate, though the usual caveats on polling and on the elections still many days away apply.
Market Implications
With Harris catching up to Trump, the risk of strong financial instability (e.g., end of Fed independence), high and broad import tariffs, and mass deportation of undocumented migrants associated with a Trump presidency have diminished.
However, Harris’ policy agenda so far indicates more government spending with unclear funding. Also, split Congresses have often seen parties funding one another’s priorities (i.e., limited fiscal consolidation).
I still expect the Fed to ease in September.
Presidential Race
Fundraising
Congressional Races
Calendar
Notes
The 2024 presidential campaign has started early and the stakes for market participants are unusually high as the macro policies of a second Biden or Trump administration would differ markedly. This elections monitor updates investors abreast on the progress of each candidate. It is updated every other week and more often if needed. The monitor has five parts.
Betting Odds (Chart 1)
I focus on a Trump/Biden rematch because of the overwhelming odds that they will each get their party nomination. Also, a change in candidate prior to the election is unlikely but possible. I monitor this risk through the difference between the odds of a party victory and that of the candidate. For instance, the recent widening of the difference between the odds of a Republican and a Trump victory could signal a greater, though small, risk of Nicky Hailey winning the nomination.
Polls (Chart 2)
I include swing state polls (Charts 3 and 4). Swing states could swing either Republican or Democrat and typically include Arizona, Georgia, Michigan, Nevada, Pennsylvania, and Wisconsin. They account for 77 votes of 538 (270 votes are required to win) and pollsters generally agree the winner must take most of them.
Market Impact (Chart 9)
The performance of the stock Trump Media and Technology Group stock could become a proxy for market views on the odds of a Trump victory.
Fundraising (Charts 7 and 8)
I monitor the funds each candidate raises and spends. Even though they are only a fraction of the funds Political Action Committees (PAC) raise, they still contain information on the popularity of the candidates. The data is updated monthly.
I use Google searches as proxies for the public interest in the elections, with Taylor Swift searches as the benchmark.
Calendar
The calendar provides the schedule of each party’s primaries, the steps to inauguration, and a calendar of Trump’s ongoing legal battles. These are:
- Supreme Court ruling on whether Colorado and Maine can keep him off the ballot.
- New York civil fraud trial.
- Defamation suit from writer E. Jean Carrol.
- Georgia racketeering suit against Trump and associates for trying to overturn the 2020 election.
- Federal trial over trying to overturn the 2020 election.
- Federal trial over the mishandling of classified documents.
- New York 2016 hush money.
Trump’s legal calendar is evolving and will be updated as information becomes available.