Polls and prediction markets are poor indicators for US election outcome odds
New : Saxo’s US Election Countdown weekly for Investors
By John J. Hardy, Chief Macro Strategist at Saxo
It’s always critical to point out that US political polling has mislead many observers on the likely outcomes for recent elections. In 2016, the nation-wide poll averages were basically spot-on and even slightly over-estimated Trump’s popularity. But what gave Trump the election was stronger than expected results and narrow wins in US states that were considered safely Democratic – particularly Pennsylvania, Michigan and Wisconsin. What caused those states to suddenly tilt for Trump? The very short answer is voter turnout, as new voters that had never voted before suddenly showed up at the polls.
We’ll talk about this plenty more in weeks to come, but as long as the polls are anywhere near close, the election is Trump’s to lose unless there are key voters that are highly motivated for Harris relative to Trump.
The recent market volatility had very little to do with US election dynamics
It is impossible to point to market developments that are fully and only linked to US election outcomes at this stage. But there was a flurry of market activity around the time of the assassination attempt on Trump that was arguably linked to the strengthening odds of his winning in the wake of that event. This included a sudden surge in crypto-currencies, which Trump has spoken strongly in favor of, and a surge in small-cap stocks and financial stocks like large banks. Financials rallied as the market knows that Trump favors general deregulation. And the market probably also recalled the surge in small-cap stocks when he was elected president in 2016 due to his promising the huge corporate tax cuts that he delivered in 2017.
However, the vast majority of the volatility over recent weeks has been linked to non-election issues.
Scripted Harris versus off-the-cuff Trump: key week for both candidates
This week is a critical week for the Harris campaign, as the Democratic National Convention will feature VP Walz speaking on Wednesday and Harris’ nomination acceptance speech on Thursday. She does very well with a teleprompter and has injected tremendous energy into the Democratic campaign. But a known weak point for Harris, is “the unscripted moment”, as she has struggled with gaffes and communicating effectively in press conferences with unscripted questions and one-on-one interviews, even with a friendly reporter. But at some point, that close-up moment will have to come – likely before the end of August.
Trump, meanwhile, seems to be eyeing this weakness and has even touted it loudly. For his part, he is launching a big push this week to attend rallies in several swing states and will sit for multiple press conferences and interviews.
In short: this will be the first week in which both campaigns are going at full tilt at the same time. Stay tuned!
Will Trump do something dramatic to shake up his race?
On the Trump side, many have speculated that Trump’s slide in the polls could mean he is looking for some dramatic reboot of his campaign. Back in 2016, it was around this time of the election season that he fired key campaign figures and went “full MAGA” with the Kellyanne Conway and Steve Bannon advisory team. Could he be eyeing a similar move this time around? Could even his unpopular VP pick Vance be in the firing line so late in the race? With Trump, you never know.
Election-related market drivers from here
The market has come rip-roaring back from the recent turmoil, in part because of benign US data that has shown both slightly lower than expected inflation and better labor market data, driving hopes for a “soft landing” or even no-landing. In the near term, the market will likely not put the election more on the agenda in the near term unless something shifts dramatically in the polls. What could spark such a change? That list could include an up-close, unscripted interview of Harris, a dramatic reset by the Trump campaign, but especially that September 10 debate.
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About John J. Hardy
John is Saxo’s Chief Macro Strategist, with over twenty years experience in the financial markets, chiefly as Saxo’s former Head of FX Strategy. He is also an American, having grown up in Houston, TX and has a long-standing passion for following the course of US elections and their place in history.
