US Elections Monitor: Will the Guilty Verdict Impact Trump’s Electoral Prospects?

Summary

• Early evidence suggests presidential candidate Donald Trump’s guilty verdict lowered his odds of victory but still left him in the lead.
• The policy debate is about to focus on immigration, which could lift market participants’ growth expectations.

Market Implications

• I still expect the Fed to remain on hold until end-2024.

Trump Guilty Verdict May Not Change Status Quo

After Trump was found guilty in the hush money case, sentencing is scheduled for 11 July.  Even if Trump receives a custodial sentence, he will appeal and remain free while the appeal is ongoing, which could take up to a year. This would leave him free to continue campaigning.

We only have limited information on the impact of Trump’s guilty verdict on his electoral prospects. We know that:

• It hardened Trump’s supporters. The Trump campaign reported raising $53mn in the aftermath of the verdict. Until now, Trump’s fundraising had lagged President Joe Biden’s and it is unclear Trump will be able/willing to dip into the windfall from listing Truth Social to fund the campaign (Charts 8-10). Therefore, the funding spike could make a difference.
• Moderate Republicans rallied around Trump as they saw his conviction as politically motivated.
• The verdict brought about a spike in Google searches for Donald Trump, although it is now almost back to the pre-guilty verdict level (Chart 7). The verdict has not elicited a lasting increase in public interest in Trump, positive or negative.

What we do not know yet is whether swing voters, whom Trump needs to win, will be turned off. Betting markets tend to adjust faster to news than polls. Real Clear Politics average of six betting sites shows Trump’s odds narrowing from 16% higher than Biden’s prior to the verdict to about 8% higher (Chart 1). That is, bettors think the verdict has decreased Trump’s odds but not by enough to change the outcome of the election.

Two polls held after the verdict suggest it had only a limited impact, with Americans split along party lines. Focus group reactions are consistent with this data: voters had limited interest in the trial and generally hold low expectations of Trump and more broadly businesses behaviour. We await more polls to assess the impact of the verdict.

Biden Turns His Attention to Border Issues

Biden has announced an executive order that would ban illegal migrants from claiming asylum. The move signals the administration seeks to address the major voter issue of undocumented immigration. It follows the February collapse of a bipartisan Senate deal on immigration after Trump found it not tough enough.

The order is unlikely to succeed as it is likely to be struck down in court (like a similar order enacted by Trump in 2018) and its implementation would require massive funding, unlikely to be forthcoming from a Republican-dominated House in an election year.

However, the order could refocus markets on the role played by immigration in raising growth and possibly inflation. Immigration has been largely ignored as a macro driver, which could explain the downward bias of consensus expectations on growth and employment. A reassessment could see markets become more optimistic on growth and less optimistic on Fed cuts.

Presidential Debates Agreed

The candidates have agreed to hold presidential debates in June and September (see calendar). Once Trump’s vice president has been announced, vice presidential debates are likely be set up.

Market Implications

Short-term market implications are limited as the election is still six months away. Also, unlike 2016, a Trump win this time would be less surprising. I still expect no Fed cut in 2024.

Long-term market implications could be profound if Trump wins, especially with a Republican majority in both House and Senate.

Betting Odds

Polls

Google Searches

Fundraising

Market Impact

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 (Charts 1-2)

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 3-6)

I include swing state polls (Charts 3-6). 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 8-9)

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.

Market Impact (Chart 10)

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.

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.

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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.

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(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.)