With less than 30 days remaining before the 2024 Presidential and other elections on November 5th, investors’ eyes are focused on the electoral outcomes and the potential market impacts.
The Presidential race remains very tight between Vice President, Kamela Harris, and former President, Donald Trump. It appears that the path to the White House will hinge on just seven key swing states: Nevada, Arizona, Michigan, North Carolina, Wisconsin, Georgia, and critically important Pennsylvania with its 19 electoral votes. Current trends and polls suggest the path to 270 electoral votes will be difficult for either candidate without securing Pennsylvania. Perhaps we now know why it’s called the Keystone State.
We begin by introducing subscribers to Polymarket for an alternative perspective on the electoral college and what we the people are collectively thinking. Polymarket is the world’s largest prediction market. It provides registered traders the opportunity to profit from their beliefs and insights by betting on the outcome of future events across various topics such as politics, sports, and pop culture. Polymarkets reflect accurate, unbiased, real-time probabilities for significant global events. Note, however, Polymarket is unavailable to U.S. residents of the United States because it has not obtained appropriate license(s) from the Commodity Futures Trading Commission.
According to Polymarket, research shows prediction markets are often more accurate than polls or pundits. Polymarket traders aggregate news, polls, and expert opinions, making informed trades with the expectation of profit. Traders’ economic incentives ensure market prices adjust to reflect “true” odds. Polymarkets always seek the truth (Latin: “semper veritas”). According to Polymarket, this makes prediction markets one of the best sources of real-time event probabilities.
So, without further ado, we present the Polymarket U.S. Presidential election market predictions as of 8:30 am on Thursday, October 10, 2024, below:
Source: Polymarket https://polymarket.com/event/presidential-election-winner-2024?tid=1728566107442
Note that there is $1.6 billion of volume on this particular polymarket. The market rules provide “This market will resolve to “Yes” if Donald J. Trump wins the 2024 US Presidential Election. Otherwise, this market will resolve to “No.” The resolution source for this market is the Associated Press, Fox News, and NBC. This market will resolve once all three sources call the race for the same candidate. If all three sources haven’t called the race for the same candidate by the inauguration date (January 20, 2025) this market will resolve based on who is inaugurated.”
Let’s now look at the potential market perturbation each candidate’s policies may have on equity markets. In the long run, there is little evidence suggesting that the political party elected has a directional influence on broad markets. U.S. Bank investment strategists examined market data over the past 75 years and concluded that financial market performance in the medium to long term is minimally impacted by election outcomes. The big drivers of financial market performance remain inflation indicators and broad economic trends.
In the short run, however, specific sectors can benefit based on who is in office and their policies in place. Once again we find that Goldman Sachs is doing “God’s work” and has developed proprietary equity portfolio baskets for each candidate with a Democratic victory basket and a Republican victory basket. Given their proprietary nature, the equity basket securities are not broadly available publicly, but various market participants have provided a general overview of sector preferences and hypothetical stock picks that might be influenced by the policies favored by each party. Please note that we are simply citing conjecture with the foregoing individual stock and ETFs cited. We have conducted limited research and these securities absolutely do not represent recommendations:
Democratic Victory Basket:
- Renewable Energy: Solar, wind, and other green technology companies, like First Solar Inc (ticker: FSLR) or iShares Global Clean Energy ETF (ticker: ICLN), due to anticipated continued emphasis on environmental regulations and the funding of “community-based climate projects.”
- Healthcare: Companies that might benefit from healthcare reform or expansion, like those involved in Medicaid programs, such as a large managed care organizations (MCOs) like Elevance Health (ticker: ELV) or iShares U.S. Healthcare Providers ETF (ticker: IHF), or health technology leaders, like Boston Scientific (ticker: BSX) or iShares U.S. Medical Devices ETF (ticker: IHI).
- Technology: While tech is often considered bipartisan, Democrats might push for more tech regulation on “misinformation or disinformation” while at the same time supporting innovation in certain tech subsectors, especially those linked with green tech or social platforms with obedient, progressive companies, like Meta Platforms, Inc. (ticker: META).
- Consumer Discretionary: Companies that might benefit from policies aimed at increasing minimum wages or enhancing consumer protections. This basket might potentially include companies like Target (ticker: TGT) or other companies with strong ESG (Environmental, Social, and Governance) practices such as those represented in the iShares ESG Aware MSCI USA ETF (ticker: ESGU). ESGU represents a potential Democratic trifecta basket in and of itself with 34% allocation to technology, 16% to consumer businesses, and 12% to healthcare.
- Education: Companies related to education technology or services, like Coursera, Inc. (ticker: COUR) might also see benefits due to potential increases in educational spending.
- Infrastructure with a focus on Sustainability: Companies that work on modern infrastructure, including smart cities, electric vehicle infrastructure, etc. Such companies may be found in the First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index ETF (ticker: GRID)
Republican Victory Basket:
- Financials: Banks and financial institutions often benefit from deregulation, which tends to be a Republican policy initiative. Companies like JPMorgan Chase & Co (ticker: JPM) or The Financial Select Sector SPDR Fund (ticker: XLF) could be included.
- Energy: Traditional energy and fossil fuel sectors, like oil and gas companies, might be favored due to lower emphasis on environmental regulations with a “drill baby drill” mindset. Think of companies like ExxonMobil Corporation (ticker: XOM) and The Energy Select Sector SPDR Fund (ticker: XLE).
- Defense: Although the world was mostly a peaceful place under the 45thS. President, increased defense spending has historically been associated with Republican administrations. Lockheed Martin (ticker: LMT) or Invesco Aerospace & Defense ETF (ticker: PPA) could be examples. (Personally, I would fade the defense sector as an area of potential focus under Elon’s Government Efficiency Commission since it has the greatest potential for taxpayer savings.)
- Industrials and Materials: With policies often focusing on infrastructure or domestic production, companies in these sectors might benefit. Freeport-McMoRan Inc. (ticker: FCX) or SPDR S&P North American Natural Resources ETF (ticker: NANR) may be included.
- Pharmaceuticals: Less focus on regulating drug prices could be seen as positive for big pharma. Consider companies like Eli Lilly and Company (ticker: LLY) and The Health Care Select Sector SPDR Fund (ticker: XLV). (Personally, I think of this sector as an area of risk given Robert Kennedy, Jr. grand alliance with Trump and his focus on Making America Healthy Again.)
- Bitcoin/Crypto: Trump is expected to lay out “a plan to ensure the United States will be the crypto capital of the planet.” Consider Fidelity Wise Origin Bitcoin Fund (ticker: FBTC) and Fidelity Crypto Industry and Digital Payments ETF (ticker: FDIG) which includes Coinbase Global, Inc. (ticker: COIN) and several bitcoin miners.
Please note that Goldman Sachs also offered proprietary short baskets for each party, but we have only summarized Goldman’s longs.
Whether or not you accept the “veritas” of Polymarket, you may be interested in another good exchange of real-time event probabilities with the handicapping being done by capital market investors. The graphic below presents the relative performance of Goldman’s Victory Baskets through October 9, 2024:
Source: Zero Hedge https://x.com/zerohedge/status/1844168635000160748
As the chart above depicts, markets are constantly re-handicapping probabilistic outcomes. There is still plenty of race left in this two-horse contest as we come around the bend into the home stretch. Voter turnout will be critically important, particularly turnout among young voters. This cohort has typically left political decisions more in the reins of their elders and has historically demonstrated lower participation rates. Since 1988, voter turnout amongst those aged 18 to 29 years has averaged 42%, compared to 56% for those aged 30 to 44, 66% for those aged 45 to 59 years, and a 69% voter turnout for those 60 years and older. As the pundits are wont to say, veritas is stranger than fiction. We’ll all just have to see what happens.
“This is the chief thing: be not perturbed, for all things are
according to the nature of the universal.”
~ Marcus Aurelius
