New polling data released yesterday suggested that Donald Trump has been recovering and has a real chance of winning the election last week. The election had been looking as though Hillary Clinton had it in the bag. I’ll take a closer look at those polls and possible election outcomes later, but first I will turn to their effect upon the markets and repeat that I still see a Clinton victory as a near-certainty.
As always, what is important to the markets is not so much the data, but how the new data is at variance with the old data. The polls still mostly put Clinton ahead – it is just the variance between the perception or a wrapped-up race and a very competitive race.
There is no doubt that Trump is the anti-establishment outsider candidate, and few analysts feel they know what he would want or be able to do as President. This causes fear and uncertainty.
Since the Trump surge began to manifest in the polling, stock markets are down, Gold and the Swiss Franc, the Japanese Yen and the Euro are all up (safe havens), and the U.S. Dollar is also down. Most ominously the key S&P 500 Index is below its crucial support at 2120, which might be the first sign of a bear market.
If Trump were to win, or the election outcome be plunger into uncertainty and litigation (as it was in 2000), I am certain global stocks would fall quite sharply, and these currencies would continue along the same paths I have outlined, at least for a week or so after the election.
Alternatively, if Clinton wins, the reverse will be the case. Therefore, correctly forecasting the outcome of the election should be a way to make money in the market.
So, back to the polls. The Trump momentum headline event came from an ABC tracking poll which showed Trump 1 point ahead yesterday and even today, which is the first major poll showing him in the lead nationally since May.
Despite this, the highly well-respected pollster Nate Silver still gives Trump only a 30% chance of winning the election next Tuesday.
Nevertheless, when we take a closer look at individual state polls, we can start to see a rosier picture for Trump than the 30% chance suggests.
The U.S. Presidential election is determined by the voting within states with each state having a population-related number of votes within the electoral college. A candidate needs a simple majority of 270 electoral college votes to win.
The states that look solid for Trump tally to about 210 votes. Although Ohio is competitive, it is starting to look safe for Trump, so I include Ohio within this column.
There are then three competitive states where recent high-quality polling is showing not only Trump pulling ahead of Clinton by more than the margin of error, but also a swing towards Trump from previous polling. These states are North Carolina, Nevada and Florida. If Trump can win these states, this would bring his tally up to 266 votes – just 4 short of victory. Florida, with 29 electoral votes, is the big prize here.
It is important to emphasize that even if Trump can win all these states, he is still short of victory. He needs to also win at least one of four other states: New Hampshire, Pennsylvania, Wisconsin and Michigan. Here’s where it gets interesting: there have not been any very high-quality polls conducted in any of these four states for about a week, except Wisconsin which was sampled four days ago. These states are all showing Clinton leads of about 4 or 5%. Colorado is in a similar position.
If new polls are released over coming days showing Trump leading in Florida and moving into the lead in any of those four states, as well as maintaining his existing leads, the prospect of a Trump victory is going to look more likely.
I believe that Clinton is going to win for the simple reason that more people hate Donald Trump than hate her. It is a sad commentary on the election but this is the reality.
This election is a strange campaign. Polling data show that it is less a contest where the candidates fight to persuade undecided voters than one where candidates fight to motivate “their” voters to turn out. Trump is strongly in the lead among men, white people, and older voters. He would win a landslide from any of these groups.
Clinton is strongly ahead among women, non-whites and the young.
It seems that the election will turn on which side succeeds in bringing out their voters. While Clinton’s voters are traditionally less likely to vote, I think that on election day they are going to wake up and be very afraid of Trump winning, and come out in sufficient numbers to swing the result. The U.S. Dollar and risk assets should rally significantly as soon as the result becomes clear.
Whoever wins is in store for a difficult and possibly hamstrung Presidency. Trump could face a near-insurrection from segments of the American population and the governing apparatus, while a Clinton that just squeaks home would need to fear possible impeachment over her email affair and a lengthy criminal investigation.