With two weeks and the clock ticking loudly to November 7 election day, the pollsters Stateside have been getting increasing attention from markets. USD has gained support and Treasury yields have broken higher, which signals concerns about faster inflation and debt issues due to Trump’s fiscal policy (tax cuts) plans. But while prediction markets clearly indicate a Trump win and view a “Republican sweep” as the most likely outcome, data from swing states suggest a continued narrow race.
Without wanting to state the obvious, it’s another extraordinary election year in the US, even when leaving aside the fact that the current incumbent in the White House pulled out of the race. Deep and ongoing racial and social divides within the country remain evident, and you have the two very different candidates. The vote is now between a female 60-year-old versus a male, former president; a former prosecutor who will take on a convicted felon; a supposed agent of generational change up against an experienced near octogenarian. Those many different sub-stories instantly make the race to the White House really fascinating.
Narrowing polls
With election day just 14 days away, the Democrat Harris has seen her honeymoon bump that she enjoyed on becoming the blue candidate through the summer ease back. Election polls have tightened further in recent weeks, and some are at their closest in a few months since Harris entered the race. For example, the aggregator fivethirtyeight.com shows she is leading Trump by just 1.8%, so well within the margin of error.
On the flip side, the betting odds site polymarket.com has been getting a lot of media attention. Trump odds of winning have jumped in recent days to 61% vs. 39% for Harris, having been near 50:50 for some time. A caveat to this is that the Wall Street Journal ran an article late last week noting a handful of accounts have been placing large bets of similar amounts near $30 million in crypto, in favour of Trump winning.
Trump’s built-in electoral college advantage?
It’s important to remind ourselves that the US process is slightly peculiar in that the popular vote does not win the candidate the election, as it is victory in the electoral college which determines the outcome. This essentially means that all votes for each state go to the majority winner of that state. What this clearly does is give greater weight to rural central states (of which there are more) that tend to be Republican, and less weight to the most populous coastal states that lean Blue.
In 2016, President Trump won the election despite losing the popular vote by 2.1% and Hilary Clinton winning 2.8 million more individual votes. In fact, a little over eighty thousand votes spread over three important swing states, Michigan, Pennsylvania and Wisconsin decided the election in Trump’s favour.
Swing states are key
Trump will need to win a number of crucial swing states to claim victory in the electoral college. That means those states above, plus Arizona, Georgia, Nevada and North Carolina are required to gain the keys to the White House, though obviously swings to either side could mean many more states come into play.
Importantly, over the last month in these key states, there have been some noteworthy shifts. For example, Michigan, a traditional Democratic stronghold, has seen a turn towards Trump. This has been attributed to Israel’s escalation towards Lebanon and the largest Arab American population being frustrated with the US stance. Pennsylvania is often considered the heavyweight swing state with 19 electoral votes. Indeed, since 2008 the winner of the presidential election has also secured the electoral votes from Pennsylvania. Again, it is traditionally Democrat leaning but Trump has recently narrowed the lead there too.
All to play for…
Prediction markets and polls are not perfect of course, but they do offer useful guidance on election probabilities. Are we are closing in on the margin of errors coming into play and then the likelihood of a very close election? Trump continues to bank on the intensity of his most loyal supporters while hoping that disillusioned Republicans ultimately swing his way. Harris needs to sway Biden voters who are now less certain, and the working-class white population, especially in Wisconsin and Pennsylvania.