Ten minutes notice was all he gave me. Then the Republican presidential candidate Donald J. Trump introduced me on to the stage at one of his political rallies in Jackson, Mississippi.
To say that I was somewhat nervous facing this huge American crowd would be an understatement. But it went well and was a great experience. That day was the beginning of a friendship with the president, and we have met and spoken many times since.
Nigel Farage, Founder, Fortune & Freedom
Trump’s rally happened in the aftermath of the shock Brexit referendum result. I found myself amazed at the number of requests that I received to visit the US and talk to Republican and conservative groups. Believing mistakenly, as it proved at the time, that my goal in UK politics was achieved, I was happy to pack my bags and cross the pond.
What I learned there could prove crucial to anticipating the result of this November’s US elections. And those elections could prove crucial to UK investors. After all, the US stockmarket has been on the move under President Trump. Unlike most markets around the world, as he likes to remind his detractors on Twitter…
In this report, we explain what my insights about the coming US election mean for you, the British investor. What does it suggest for our post-Brexit trade deal with the US, for example? Will US stockmarkets continue to boom? Will the US continue to confront China on its human rights record and the so-called trade war?
As the mainstream sees it, the election is of course a done deal. The only thing undecided about President Joe Biden was his running mate. But I’m not so sure…
It was the same in 2016, remember? The overwhelming narrative from the mainstream media is that Trump has as good as lost the 3 November presidential election already. In part this is because their overwhelmingly liberal/woke bias wants this to be the case.
The national polls show Biden with a 7 to 10-point lead and that is presented to us as conclusive evidence he’ll win. Here is a brief guide on why that may well be wrong, before we dig into the details below.
Why I expect Trump to win
US presidential elections are contested state by state, with each state putting forward delegates to the Electoral College. It is an old-fashioned system designed to prevent the more populous states from dominating the others. But each national poll you see on the news is a winner takes all contest, which doesn’t take into account the Electoral College system. The difference is crucial.
California is the biggest state by far and shows Biden strongly in the lead. But I wouldn’t expect the Trump campaign to even visit there, as it will not matter whether they lose it by one or five million votes. It is in the key swing states that the contest will be decided. So, ignore predictions based on national polls. Focus on the swing states, where Electoral College votes are actually up for grabs.
It’s not just the Electoral College that should make you question Biden’s lead. In politics the ground campaign really matters: getting out the vote on polling day can make all the difference between winning and losing. This is the important part of the political landscape. And it is run by volunteers not in search of payment.
Whilst the Democrats do have their enthusiastic, even fanatical wing of volunteers, the truth is that Biden is not inspiring confidence in his own supporters. His key campaign tactic appears to be to hide in his basement and do the odd livestream broadcast. When he is allowed out by his minders, he often seems to forget where he is and needs to be led by the arm on walkabouts.
By contrast, Trump is a very robust 74-year-old, with an extraordinary work ethic and drive. He will dominate the news agenda and take his message repeatedly to the places that matter. Trump activists support their man more strongly than ever as they believe that a Biden win would see him as a puppet of the growing hard left in the Democratic Party. I have no doubt that the Trump campaign will win the ground game.
When questioned, about half of declared Biden voters say that the primary reason for their vote is the dislike of Trump. But in elections, voters need positive reasons to go out and vote. Negative reasons on their own are often not enough.
Can Biden turn this around? I have to say that I doubt it. And growing concerns of environmental issues could see a green party candidate with conviction damage his prospects.
Perhaps the most contentious issue to have emerged already is the prospect of large numbers of people engaging in early voting. The US equivalent of the postal voting system in the UK.
I can tell you from my personal experience that our system is riddled with corruption, intimidation and fraud. Whilst Trump may have been wrong to speculate about postponing the election because of this risk, he was quite right to flag the issue. A very high number of early votes is a problem for the Republicans.
Much will depend between now and 3 November on the coronavirus pandemic. This introduces a highly unpredictable element into the odds. Many think that Trump has been too casual about the threat posed by the virus. Ironically though, a big second wave as winter approaches may even help Trump’s prospects as his voters are more likely to go to the polls than the lukewarm millions who say they will support Biden.
I have no doubt that Trump has been good for the US economy. And a win against media predictions could see a short sharp rise in the US stockmarkets. What I am sure of is that four years of the Democrats will see increased personal taxation, a threat to reverse recent corporate tax cuts and a culture of deeper regulation.
Now I know Trump isn’t everyone’s cup of tea. You might even hate him. But this newsletter isn’t about preaching Trump’s message. Although, you know my view. Trump says it as he sees it, as do so many New Yorkers. I have supported him 100% and I believe that his re-election is very important for the whole Western world. Who else will stand up to the growing might of China?
But here’s the key, however you feel about him. My political thoughts aside, I would urge all of you not to make the common, oft repeated mistake of underestimating President Trump this November. Especially if you’re an investor.
This report explains what’s at stake for you on 3 November. And first up is our investment director Rob Marstrand, to show you just how much credit President Trump can take for the US’s impressive stockmarket rally, so far…
Nigel Farage
Founder, Fortune & Freedom
How Trump goosed the US stockmarket
The US stockmarket has enjoyed a spectacular decade. It rose like a phoenix from the ashes of the global financial crisis, and still hasn’t looked back. As I’ll explain, since he came to power, Donald Trump has played an important role in keeping the market rising.
A raging ten-year bull market
(S&P 500 index, August 2010 to August 2020)
Source: macrotrends.net
Trump officially became US president on 20 January 2017. In his first three years as president, up to 17 January 2020, the S&P 500 index of large company stocks made gains of 46%, which is over 13% a year compound. This stands in stark contrast to other comparable stockmarkets around the world, which underperformed badly.
Trump’s policies that have goosed the stockmarket largely fall into five categories:
- Corporate tax reform – cutting tax rates
- Regulatory reform – cutting red tape
- Increased government deficit spending
- Pressuring trade partners to renegotiate trade deals
- Leaning on the Federal Reserve (US central bank) to keep interest rates low.
I’ll explain each of these in a little more detail.
Tax reform boosted profits and consumption
Rob Marstrand, Investment Director, Fortune & Freedom
First, there’s tax reform. Trump cut the headline rate of tax on US corporate profits from 35% to 21%. This was long overdue, as the old tax rate was much higher than the global average. According to the Tax Foundation, the average rate across 176 countries was a little over 24% in 2019. So the US was way above this before Trump came along. Which is pretty surprising, given the US’s reputation as a hotbed of capitalism.
Corporate tax rates are passed on to customers within the prices charged by businesses. So cutting corporate taxes means people can buy more things with the same amount of money, providing a boost to the economy. (Remember this the next time you hear someone calling for higher taxes on companies. They don’t pay them… ultimately, you do.)
Next, lower taxes provide a boost to exporters, because they can sell things more cheaply on world markets. Thus, Trump’s big tax cut improved the competitiveness and profits of US exporters.
Then there are the businesses with dominant industry positions. For those businesses, any tax cut drops straight to the bottom line, and there’s little pressure to reduce prices charged to customers. So it’s an immediate and long-term profit boost.
By my estimates, the corporate tax cut provided an immediate boost to S&P 500 company profits of about 11%. Obviously, that provided a direct boost to the US stockmarket.
But Trump didn’t just cut the tax rate. He also made it a lot cheaper for US companies to repatriate cash profits generated overseas. Previously, the US had a ludicrous system where huge amounts of extra tax were paid by multinational companies that brought cash home. There was an obvious end result: US companies were incentivised to invest that money into overseas projects, instead of creating US jobs. Trump’s move means more US jobs, higher wages, and another boost to the economy.
Cutting red tape to free the economy
Trump’s regulatory reforms haven’t received as much attention in the media, but American friends tell me that there have been some big improvements. Obviously, cutting bureaucracy and red tape makes it easier for companies to function. That means managers can dedicate more time to actually doing their jobs – running and growing their businesses – rather than dragging along an oversized millstone of deadweight, government bureaucracy.
(Incidentally, this is one of the great opportunities of Brexit – the freedom to reform or abolish unnecessary EU rules that don’t suit the UK. But it’s still up to the current or future British governments to seize that advantage. We will see.)
Trump’s overriding mantra, as set out in Executive Order 13771 “Reducing Regulation and Controlling Regulatory Costs”, is that two regulations must be eliminated for every new one added. According to analysis by Forbes, by Spring 2019 – over two years into the Trump presidency – the ratio of deregulatory actions to regulatory actions was running at 2.6-to-1, well above the original target.
Incidentally, there’s another important layer to the regulatory and tax landscape in the US. While there’s a central, federal-level overlay, individual states have their own regulations and tax systems. Some state governors are clearly more business friendly, with lighter regulations and lower taxes. Others clearly aren’t.
Since many Democrats have become increasingly anti-business in recent years, this factor could help the Republicans in state level elections, improving their party’s chance of maintaining control of the Senate in the elections on 3 November. On the other hand, as Nigel has pointed out to me, Trump is more popular than Republican politicians in general. So this could trend either way.
Big spender
The third factor which helped Trump push up the stockmarket is an old chestnut favoured by all sorts of governments looking for a quick boost to the economy: increased deficit spending. This is the “borrow and spend” tactic, where governments spend much more than they raise in taxes, and cover the shortfall with borrowed money. Most people agree that excessive deficits are a bad idea in the long term, as they increase the national debt. But they’re an easy way to boost GDP in the short term.
According to the Congressional Budget Office, the US federal deficit was $585 billion in 2016, but rose to $984 billion by 2019. That’s an increase of $399 billion. Given that US GDP was almost $21.43 trillion in 2019, the differential has goosed up GDP by 1.9%. Apart from the immediate, short-term stimulus to the economy of this extra spending, the improved headline GDP growth helps business and market sentiment, making investors more prone to drive up stock prices.
Winning the trade war
And so we come to trade. Trump has always followed a policy of America First, and his trade policies have made this clear. Obviously, there are ongoing skirmishes with China over physical goods, but also in a struggle for tech dominance.
And we shouldn’t forget that Trump also ripped up the North American Free Trade Agreement (NAFTA), and renegotiated trade terms with neighbouring countries Canada and Mexico (by way of some tariff pressure along the way). He’s also imposed or threatened tariffs on imports of goods from the European Union – from German cars to Spanish olives.
This appears to be part of a strategy of import substitution, meaning he wants Americans to buy the equivalent American products instead of foreign ones. That’s on top of making it easier for US multinationals to repatriate and invest foreign profits within the US. Basically, Trump is saying, “Why buy things from overseas if you can make them at home?”
This has damaged certain US companies in the short term, such as big importers of clothing, household goods or electronic gadgets made in Asia. Or US car companies that have big factories across the border in Mexico. Or farmers that have been hit by retaliation from China.
But, unlike many countries that have tried this sort of thing before, the US has all the capabilities to bring manufacturing home. So, again, the idea is more domestic investment, more jobs, higher wages, and the economic boost that should follow. And, if you slap big import tariffs on foreign goods, obviously people are more prone to buy local substitutes, which are now relatively cheaper.
Jawboning the Federal Reserve
Finally, Trump has been leaning on the Federal Reserve to keep interest rates low. In theory, the Fed is independent from the government. But, even by just voicing (or tweeting) demands for lower interest rates, it’s likely to make people think they will stay lower for longer.
Lower interest rates have an effect in the real economy, by reducing the interest burden of companies and heavily indebted consumers and mortgagees. But their mere prospect also has an important effect on asset prices, such as stocks. Investors have a knee-jerk reaction to the prospect of lower interest rates. In short, they bid prices up.
Putting all this together, it’s clear that Trump’s policies have goosed up US stocks. The deficit spending, regulatory reforms and pressure on the Fed to keep interest rates low have probably lifted all boats. But every industry sector of the S&P 500 index has also gained in some way from the tax reforms and trade policies.
Below is a table summarising my assessment of which sectors likely gained most.
Who cares about US stocks?
What happens to US stocks really matters for all investors. They are a dominant force in world markets.
According to the Credit Suisse Global Investment Returns Yearbook 2020, an authoritative source of market data, the US stockmarket made up of over 54% of the global investable market at the start of 2020. So the chances are that most investors have at least some, and maybe a lot, of exposure to the US stockmarket. Whether this is via a developed market index fund, US country fund, within a pension account, or via individual investments in US shares.
To be honest, by just about any valuation measure and after this long bull market, US stocks look pretty expensive. This means that future long-term returns are highly unlikely to be anywhere near the past ten years, and could even be severely depressed.
But, in the short term, the result of November’s US election is likely to have a big impact on sentiment. In short, Republican Trump is seen as business and market friendly, and the Democrat Party, under Joe Biden or anyone else, is seen as increasingly anti-business.
So another Trump win is likely to give US stocks at least a short-term boost, and a Biden win has plenty of potential to cause a significant market sell-off.
Rob Marstrand
Investment Director, Fortune & Freedom
Trick or treat this November?
Nickolai Hubble, Editor, Fortune & Freedom
Can we really get an investment edge by trying to predict electoral outcomes? The answer is… sometimes. And in this case, thanks to Nigel’s insights, I think we can.
But, to do so, you need to understand how and why. As Nigel has made clear, we don’t tell you what to think. We give you the insights you need to make better investing decisions for yourself.
But that does mean being informed. So, let’s take a brief dive into the US Electoral College. Don’t worry, you won’t come out the other end with your head spinning. In fact, it’s a cousin of our own first-past-the-post system, which confuses everyone else around the world.
As Nigel mentioned above, the US election for president uses something called the Electoral College instead of a simple “one person, one vote” system. There’s a fascinating historical reason behind this. As the Citizens Count website explains, “We are a union of states, not individuals.”
In fact, many years ago, US state politicians chose who the state’s presidential electors would be, before sending them off to represent the state in the presidential vote. That’s a bit like in the EU today, where the European Commission is chosen by national political leaders, not by the people. The US electoral system can be seen as one in transition from this politician led system towards a more popular vote for president. But it’s far from there yet.
The Electoral College is made up of 538 electors from all of the US states. They are chosen by their state and then go on to elect the president. But here’s the twist. While all states have abandoned the state politicians just appointing electors, different states apportion their electors differently.
Some have a winner-takes-all method, where all the states’ electors go to the winning candidate based on a popular vote within the state. Nigel mentioned California as an example of this above. Other states send electors to represent the result from each electoral district, which means a mix of Republican and Democrat voting electors from that state. That’s a bit more like the UK’s system for choosing MPs, and those MPs choose the prime minister.
There are a few other quirks. Sometimes, the electors just go and vote for a different candidate than the one they were supposed to! These are known as faithless electors. And most states now have laws against it. But I think that highlights just how diverse and in transition the system is.
Because of all these tangles, the popular vote at the national level doesn’t always deliver the president. It didn’t in the 2000 and 2016 election, for example. And that has highlighted why national polls aren’t particularly helpful in predicting who will be president.
But what does all this mean for us? Well, it suggests that national polls on the US presidential election are simply measuring the wrong thing. The national vote share won’t matter.
The decisive dozen and the Lords
Here’s what does matter. The polls within the swing states – where Electoral College votes actually swing back and forth between Republican and Democrat each election. Think of them as marginal seats.
How to define a swing state and how many there are is a huge source of debate. Especially because different states apportion their electors differently. We’ve used a fairly broad definition to spare our UK audience some of the complications and details.
These 12 states are the true battleground because they’re where the Electoral College votes are up for grabs for both Biden and Trump this election: Arizona, Colorado, Florida, Georgia, Iowa, Maine, Michigan, North Carolina, Ohio, Pennsylvania, Texas and Wisconsin. What happens in those states will determine the outcome of the election.
There’s another important quirk of the US electoral system which is crucial for UK investors in the upcoming elections. And that’s the election of the US Senate. Think of it as the House of Lords, but with elections.
Each electoral cycle, only part of the Senate is up for election. On 3 November, 35 of the 100 seats are up for election. This is by design. It means the political system can’t change as fast as it might under a purer democracy. There’s a sort of sea anchor to keep things a little more steady and slow down the pace of change.
And, in the upcoming elections, the Senate is important for a simple reason. If the Democrats want to reverse President Trump’s stockmarket goosing policies, as Rob described them above, a lot of that reversal will have to be approved by the Senate. A Senate that might not be controlled by the Democrats. Even if Biden wins the presidential race, the Senate could choose to refuse to reverse Trump’s policies, leaving them on the books whether the president and the Democrats like it or not.
On election night, 3 November, if the Democrats are ahead in the presidential race, keep an eye on the Senate to find out if Trump’s policies will be reversed. The Democrats will need to gain three or four seats to take true control. If not, the market will react less badly to Biden’s victory.
Less badly?
What would President Biden do for you?
Rob laid out how favourably US stockmarkets have performed under President Trump above. But what would a President Biden do for you?
For once I agree with the media’s surprising consensus:
- “Investors Start to Ask: What if Biden Becomes President?” – The New York Times
- “A president Joe Biden would be brutal for the stock market…” – Yahoo Finance
- “A Biden Presidency Would Be a Disaster for the Stock Market” – CCN
- “Biden blue wave tax hikes could batter stock market, strategists say” – Fox News
- “… a full Democratic sweep of the Senate with a Biden win would bring markets’ worst-case scenario” – Markets Insider
You get the idea…
The key issue is corporate tax hikes. Biden would reverse Trump’s goosing of the US’s corporate profits that came from the tax cuts. (If the Senate lets him.)
But it’s not all bad news under Biden… unless you’re a Muslim in Xinjiang, that is. According to Markets Insider, the optimal outcome for the stockmarket is a Biden victory in the presidential election, but a Republican victory in the Senate. The idea being to remove the chaotic Trump on foreign policy (ie, China), but leave his good economic policies in place. (A Republican Senate would refuse to reverse the tax cuts and other Trump policies.)
What does all this boil down to for us as British investors? Well, a Biden win would be dangerous to any US stocks you own. Especially certain energy-related ones (oil). And a Trump win could signal more trouble with China, which is bad news for commodity prices in particular, as China consumes vast amounts of them.
Why Trump’s chances are far better than you realise
There are several key reasons why we believe Trump’s chances of winning the election are far greater than the bookies, the political pundits and financial markets presume. Strangely enough, the American voters are the ones whose intuition supports our views. But back to that in a moment.
First, consider the financial implications of a Trump victory. Of course, it’s more fun to consider how embarrassed the political pundits will be again if Trump wins. But that’s not our game here at Fortune & Freedom. We look at investing and financial markets, first and foremost.
If financial markets are pricing in a Biden win, but a Trump victory is on the cards, that may mean an investment opportunity. That’s because financial markets will be surprised by the result. And surprised financial markets move, big time.
So, it may pay to look into why Trump’s chances are, as they say, misunderestimated.
- National polls don’t matter, swing states do
If just a few key states will be decisive in determining the election result, then polling within those key states will be the key. But the world and even much of the US media continues to focus on national polls as evidence of Biden’s unassailable lead. If you’re going to pay any attention to the polls, here’s a reminder of where your eyes should be:
- Arizona
- Colorado
- Florida
- Georgia
- Iowa
- Maine
- Michigan
- North Carolina
- Ohio
- Pennsylvania
- Texas
- Wisconsin
Now, at the time of writing these reports, the polls in the swing states don’t look great for Trump either. But they are closer than the national polls suggest – in line with our message that Trump’s chances are underrated.
- Democrats are overrepresented in polling
Just as there are a long list of reasons why Trump’s chances are better than they seem, there’s a long list of reasons why standard polling is biased towards Democrats. I’ll briefly mention some of them, but here’s the real question: how large is the bias? How much do you have to adjust by? That’s what pollsters and pundits debate about.
Here’s a quick list of why the typical poll is biased towards Democrats:
- Polls ask all adults, not just those eligible to vote. Those not eligible to vote are far more likely to support Democrats because of their policies towards immigration.
- Polls don’t adjust for how likely people are to actually go and vote on the day. But voter turnout has a large influence on the outcome of US elections. In fact, pollsters often model outcomes based on different levels of turnout, making that the key variable in determining the election. With Biden’s lack of charisma, the consequent lack of turnout could be decisive in the election, in favour of Trump.
- In the politically charged climate of today, many Trump supporters do not admit to being Trump voters when polled by phone. They are afraid of… well, you only have to look at the news to see what happens to Trump supporters.
- Media organisations conducting or commissioning polls have control over the way that questions are asked, such as their order. This can influence the responses, especially of unsure and swing voters. With the media commissioning many polls, this leads to a left-wing bias.
- The pandemic will affect voter turnout, a surprisingly important variable in changing the result, as mentioned above. This introduces a large source of uncertainty into the results. And that favours the underdog when it comes to the odds.
For each of these biases there are polling techniques which can adjust for the bias, or tease out how large their effect is. And the fact that some polls make use of these techniques highlights how the other polls, which seem to catch the media attention, are skewed. For example, the “likely voter” polls tend to point to a narrower race than the broader polls of all adults.
But the point is that, put together, the biases above amount to a significant skew in the polling you probably see on the news.
- Voter turnout for cellar dwellers will be low
Biden may be the least inspiring candidate since Hillary Clinton. During the pandemic, he has remained in his cellar instead of campaigning for the nomination. And he says he intends to continue doing so. At his rare events, the media is rapidly ushered out of the room before asking any questions.
Before you think we’re being flippant, consider this headline from the left-wing San Francisco Chronicle: “Relax, Obama strategist tells Democrats: Joe Biden should stay in his basement”. If that’s what the left’s strategists are saying, you can imagine how the right-wing media is addressing the lack of Biden’s appearances.
The question is whether this will impact voter turnout. Will Americans vote in droves for a man who stayed in his cellar and refused to take questions? Barack Obama strategist, White House communications chief and a top adviser to Clinton’s 2016 campaign Jennifer Palmieri isn’t worried according to her article.
But we think she should be. 52% of Democrats would prefer another candidate to Biden, while only 25% of Republicans wish someone other than Trump were their nominee. A Rasmussen Reports poll discovered that more than half of Americans polled, and almost half of Democrats, don’t think Biden will be able to finish all four years of his term. Almost half of democrats also don’t care who is president, as long as it isn’t Trump…
This is not very inspiring stuff for Biden. Or, as former President Obama supposedly said to a Democrat politician, “Don’t underestimate Joe’s ability to f**k things up.”
There’s another angle. After years as vice-president, Biden’s policy proposals are either familiar or should’ve been achieved during Obama’s tenure. This gives critics an easy angle of attack. “If it’s important, what took you so long?” Indeed, Biden has been a politician for almost 50 years!
- Americans expect Trump
Some pollsters in the US don’t just ask who a person will vote for. They also ask who the respondent expects to win. And, when there’s a divergence between how people answer the two questions, the latter has a better track record for being correct. Likely for a simple reason. It multiplies the sample size.
Ask one American who they will vote for and your sample size is one. Ask them who they think will win and your sample size is everyone that American has spoken to about politics. That can turn a 1,500 poll into a de-facto poll of ten times as many people, making it far more accurate.
How much more accurate? There are two key research papers on the topic. Accuracy of Vote Expectation Surveys in Forecasting Elections (2014) by Andreas Graefe, and Forecasting Elections: Voter Intentions versus Expectations (2012) by David Rothschild and Justin Wolfers.
Economists Rothschild and Wolfers answered our key question in their paper: “In the 77 cases in which the intention and expectation question predict different candidates, the expectation question picks the winner 60 times, while the intention question only picked the winner 17 times. That is, 78% of the time that these two approaches disagree, the expectation data was correct.”
So, what do the polls say about this November? As you can see from this chart, Trump is still in the lead, despite the bizarrely misleading headline:
Source: FiveThirtyEight
Trump’s lead in who Americans expect to win is narrowing, but that polling question suggests his chances are rather better than the polls give him credit for.
- Biden’s cognitive decline
Both presidential candidates have uttered some of the strangest gaffes in the history of presidential races. Consistently, too.
But Biden’s cognitive decline is of genuine concern because, unlike Trump, he has not faced daily scrutiny in his work and from the media. How will Biden stand up to that during the presidential campaign? How will he stand up to Trump’s bullying when they face off?
And how would he stand up to the rigours of the presidency? Well, 49% of Democrats don’t think he will stand up to them according to the Rasmussen Reports poll mentioned above… They expect him to retire during his term!
- Betting markets are misleading
Given all the problems with polling, many people turn to betting markets to figure out the odds of election outcomes. After all, people’s opinions often change when they have to put their money where their mouth is. And betting removes many of the biases above, while also asking the key question – who Americans expect to win, not who they will vote for.
But there’s a problem with all this. Bookies’ odds are not determined by the number of bets, but by their “weight”. One man betting £10 has the same weight as ten men betting £1. But it doesn’t work that way on the day of the election. And, with Biden the favourite, wealthy democrats have likely been piling into the markets with their money. This forces bookies to shift the odds.
Now that you know how the odds are shifted in Bidens’ favour, let’s examine what we expect to happen on 3 November, and what it would mean for you. Back to your Investment Director Rob Marstrand for that.
Nick Hubble
Editor, Fortune & Freedom
What are the right odds of a Trump victory?
And what would it mean for you?
Rob Marstrand, Investment Director, Fortune & Freedom
There are four main scenarios, each likely to affect US stocks in different ways. With the benefit of Nigel’s political insights and instincts, we’ve worked out estimates of the chances of each.
The first possibility is that Trump wins again and the Republicans hold on to the Senate. We believe this has a 40% probability. It’s also the most positive potential outcome for US stocks. Barring adverse events, the market is likely to get a lift under this scenario, and the bull market could roll on for a while longer.
Second, Trump wins but the Democrats take control of the Senate. We see this as having a 20% chance. Most likely this would lead to a drop in stocks, as the country faces the prospect of political gridlock.
Third, Biden could win the presidency, but the Republicans hold on to the Senate. We think this has a 10% probability. Stocks are likely to be mixed under this scenario, but probably down a bit at first. The Senate will still be in a position to rein in anti-business policies.
Fourth and finally, there’s the prospect of a Democratic sweep, where they get the presidency and control of the Senate. We see a 30% chance of this happening, assessed on current evidence. It’s also likely to be the worst outcome for US stocks, which could drop sharply under such a scenario, maybe by 20% or more.
Of course, all of this is a moving target, and could change as the election date draws nearer. Also, there are other major factors in play, such as how slowly or quickly the economy recovers from the coronavirus recession, including US unemployment rates. But, at the time of writing, this is our assessment of the possible outcomes, all other things being equal.
Rob Marstrand
Investment Director, Fortune & Freedom
What British investors need to keep an eye on in the race to November
Nickolai Hubble, Editor, Fortune & Freedom
Now that you’re more informed than the bookies, the political pundits and the financial markets, there’s just one more thing to consider. The odds aren’t fixed between now and 3 November. Everything could change in a single moment. Especially with these two candidates…
So, what should you keep your eyes on?
Well, don’t watch the national polls. Watch the swing-state polls of the decisive dozen.
And don’t forget to check out polling on the less reported question of “Who do you expect to win?” as opposed to “Who will you vote for?” It will be far more revealing thanks to the leveraged poll size.
The debates and similar political sparing will matter far more than in other presidential cycles because both candidates have weaknesses that can be exposed in debates. Trump’s gaffes and extreme statements, and Biden’s cognitive decline. The debates could be the most cringeworthy thing on TV this year, and that’s saying something.
For now, at least, it appears the odds of a “surprise” Trump victory are about 60/40. But if the probability of an upset victory grows, we’ll be sure to notify our subscribers and tell them how to profit. So make sure you tune in to Fortune & Freedom.
Nick Hubble
Editor, Fortune & Freedom