US Elections Monitor: Still Close

Summary

• Vice President Kamala Harris’ nationwide popularity is increasing but she is still within the margin of error in the swing states.
• The Democrats still appear likely to lose the Senate while the House could be in play.

Market Implications

• I expect the Fed to cut 50bp this week, 100bp this year and 150bp next year.

Harris’ Net Approval Ratings Turn Positive

By most accounts, Harris won the first presidential debate on 10 September. Since then, she has benefitted from Taylor Swift’s endorsement. However, it is unclear whether these will have much impact on the race.

Presidential candidate Donald Trump has been the target of another assassination attempt, although this time his security detail stopped the would-be gunman before he could fire a shot. The aftermath of Trump’s first assassination attempt suggests the second one may not have much impact on the race.

Betting odds have been widening in Harris’ favour while nationwide polls show her lead over Trump has somewhat shrunk (Charts 1 and 2). Harris net favourability ratings have continued rising and turned positive for the first time since June 2021 (Chart 5). In Google searches she continues keeping up with Trump, though interest in Trump is likely to rise with the second assassination attempt (Chart 6).

Even if she is doing fine nationwide, Harris has yet to get over the hurdle of the Electoral College and the swing states where she remains within the margin of error (Charts 3 and 4).

Democrats Still Likely to Lose Senate

The Democrats are pulling ahead in the generic US-wide congressional polling but are unlikely to keep the Senate (Chart 10). Of the 34 Senate seats in play this year, only 11 are held by Republicans and all of those are in solid or likely Republican states, including Texas and Florida.

By contrast, the Democrats are behind in two of the three toss up Senate races of Montana, Ohio and Michigan (Chart 11). Because the Democrats only have a Senate majority of one, and are highly likely to lose West Virginia, losing any of the toss up races would hand the Senate majority to the Republicans.

Meanwhile, the House appears more in play. The Republicans hold 220 seats to the Democrats 211 (with four vacant seats). With a few more seats the Democrats could flip the House. This is not unlikely given the Harris campaign’s strong momentum.

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.

Market Implications

I now expect the Fed to cut 50bp this week, 100bp in 2024 and 150bp in 2025.

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.

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 (Charts 2 and 3)

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.

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.

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.)