US Elections Monitor: Odds of Republican Sweep Are Surging

Summary

• Despite continuing to outraise presidential candidate Donald Trump by a wide margin, Vice President Kamala Harris has lost her lead.
• The odds of a Republican sweep have surged, in line with better presidential and Congressional Republican polling.

Market Implications

• I still expect the Fed to cut two more times in 2024 but 2025 is more of an open question, especially if the election result suggests an inflationary macro policy mix.

Trump Takes the Lead

Betting markets now favour Trump (Chart 1). This initially reflected a few large transactions but has now been vindicated by polling data, especially in swing states (Charts 2, 3 and 4). But as Trump remains within the margin of error, it is difficult to have strong conviction on the election outcome.

Harris’ favourability ratings have declined somewhat but remain well above Trump’s (Chart 5). Also, her net job approval polling, while well above Biden, has peaked too (Chart 6). These suggest Harris could be struggling to distance herself from the Biden administration and voters could be picking Trump’s program over Trump himself.

The official data on the campaigns’ September fundraising is unavailable but the Harris campaign said it had raised $378mn, against the Trump campaign $160mn (Charts 7 and 8). This makes Trump’s comeback more remarkable.

In line with Trump’s betting odds, Trump’s DJT stock price has strongly recovered (Chart 9).

Red Sweep Odds Have Surged

Betting markets show odds of a Republican sweep surging (Table 1 and Chart 10). The second most likely outcome would be a blue White House and House and a Red Senate that would constrain Harris’ ability to implement her program.

Surging odds of a Republican sweep likely reflect better polling by Trump and therefore expectations of a broad shift in favour of the Republicans together with stronger Republican Congressional polling (Charts 11-13).

Market Implications

The outcome of the race could have profound market implications. The odds have been shifting in favour of a Republican sweep that could support looser fiscal policy and tight monetary and supply side policies that, depending on how they are implemented, could add to inflation and possibly growth.

I still expect the Fed to ease two more times in 2024 but 2025 is more of a question mark, especially if the election result suggests inflationary policies.

Betting Odds

Polls

Fundraising

Market Impact

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.

Polls (Charts 3-6)

I include swing state polls. 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.

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.

Dominique Dwor-Frecaut is a macro strategist based in Southern California. She has worked on EM and DMs at hedge funds, on the sell side, the NY Fed , the IMF and the World Bank. She publishes the blog Macro Sis that discusses the drivers of macro returns.

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)