Part One: Election Roadmap Ahead of the Vote
I want to provide an “Election Roadmap” that identifies the seven key states that will ultimately decide the presidency and which party controls Washington so that you can focus your attention on the parts of the election that matter most to the markets.
First, either candidate can win the presidency. Markets have priced in a Trump win (and possible Republican sweep) but the race will be very tight and Harris can absolutely still win. The rally in stocks (Republicans are seen as pro-growth) and Treasury yields (Republicans proposals are viewed as increasing the deficit more than Democrat proposals) is partially due to the market’s expectation of a Trump victory and possible sweep.
However, despite the market pricing in this outcome, the reality is that the race is very, very tight. The Real Clear Politics national average has Trump ahead by just 0.3 points (48.4 to 48.1). That’s razor thin. Of the seven swing states that will decide the presidency (more on that below) three of them have a difference in the RCP poll average of less than 1%. The remaining three have differences of less than 3%. So, please go into the election tomorrow night knowing either candidate can win.
Second, for markets, the Montana Senate race is the most important election tomorrow. From a broader government composition standpoint, there are three possibilities: Split government (where one party controls the White House and/or just one chamber of Congress), Democrat sweep (where they control the White House, Senate and House of Representatives and Republican sweep (where Republicans win the White House, Senate and House of Representatives). Because of the Senate re -election map this year, it is very likely that Republicans will win a 51/49 seat majority in the Senate, making a Democrat sweep of the election impossible. Republicans are expected to gain two Senate seats, one in West Virginia and one in Montana. In West Virginia, the Republican Jim Justice leads Democrat Glenn Elliott by more than 30 points, and it’s widely expected to “flip” Republican. In Montana, the race is closer. Republican Tim Sheehy is leading incumbent Jon Tester by around five points. That lead has been consistent, and it is expected that seat will “flip” to Republicans. Of all the remaining Senate races, the incumbent party is expected to win (meaning no more flips). If Sheehy wins Montana and there are no major Senate upsets then the only two governments possible are a Republican sweep or a split government. As investors, we don’t need to consider policy that would occur under a Democrat sweep.
Third, ignore the national polls, as these seven states will decide who wins. The presidency will be decided by the following seven “toss-up” states: Georgia, North Carolina, Pennsylvania, Wisconsin, Michigan, Arizona and Nevada. As of this writing, Trump is ahead in all seven states, according to the Real Clear Politics polling average, although as described, margins are tight in all. Start the night watching North Carolina and Georgia, they could be important barometers. Trump leads in Georgia by 1.9 points and North Carolina by 1.5 points according to the RCP average. If Trump is having a strong night, both of these should be able to be called somewhat early and that means he’s likely performing above polling in other states as well.
Conversely, if neither can be called until very late Tuesday (or early Wednesday) or Harris pulls off an upset in Georgia or North Carolina, then it implies the polls are wrong and Harris is having a good night. Bottom line, North Carolina and Georgia are east coast states, and their polls close relatively early. How soon they can be called will be a barometer for Trump (and the sooner, the better for him). Winning just the Sun Belt toss-up states isn’t enough. To win, a candidate must win at least one of the Rust Belt states. The toss-up states can be divided into two groups: The Rust Belt of Pennsylvania, Wisconsin and Michigan and the Sun Belt states of Georgia, North Carolina, Nevada and Arizona. Trump has his biggest polling advantages in three of the Sun Belt states (Georgia, Arizona and North Carolina). But winning the four Sun Belt states (including Nevada) is not enough. If Trump wins the Sun Belt states (GA/NC/AZ/NV) and Harris wins the Rust Belt states (PA/WI/MI), Harris would win the election at 272 electoral votes vs. 268. So, Trump must win at least one Rust Belt toss-up state (and all the Sun Belt toss-up states) to become president.
Fourth, no decision by Wednesday morning is entirely possible. It shouldn’t surprise anyone if there is no winner declared on Tuesday night (or even Wednesday morning) given the tight race and likely challenges/ recounts that could be triggered by a close result. However, the market will begin to price in the likely outcome based on preliminary results, so even if a winner is not declared markets will likely move on the results that are known and inferred (and we will make sure you understand what the results mean for the markets).
I apologize for all this info but I have been following this because it will affect how the country is run over the next four years and your money. Maybe a bit too detailed but it was fun doing it. Enjoy the election as this year it should be quite entertaining.
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