Dear Clients & Friends,
In the week following our last article about the presidential election, the most common questions we’ve been asked are: “Who is going to win?” and, “What will happen to the market?” Duh, right? That is indeed the question. Well, we’re going to answer that for you right now. Can you believe it? We have a crystal ball, and we intend to give you a peek at it right here!
I’m being facetious. It would be wildly egotistical to think that we can predict the election. There are too many potential flaws with polling data, as we saw in the 2016 election. However, we were able to make an accurate late prediction four years ago, and today, we are going to try again. We will examine why the polls were wrong in 2016, what could be wrong with the polls in 2020, who we think is more likely to win as of today, and what reaction both the market and the economy would have if we are right.
In late October 2016, our under-poll research (research related to how the polls were being conducted) led us to conclude that part of Donald Trump’s base was being inadvertently excluded from polling data. Donald Trump’s base was not considered to be a relevant cross-section of American voters at the time. Therefore, polling data inaccurately gave Hillary Clinton a larger lead because the sample size was inadvertently biased. Most reputable polling authorities have fixed this. The problem is that 2020 presents a whole new type of potential inaccuracy, and it’s related to COVID-19.
Studies show that an alarmingly large cross-section of people who intend to vote may choose not to at the last minute for several reasons: 1) health-related (coronavirus) concerns, 2) fear over voter intimidation, and/or 3) concerns over the integrity of early voting/mail-in ballot voting. Furthermore, both the health-related concerns and the voter-intimidation related concerns are more prominent among liberal voters (Biden supporters) by an enormous margin. Additionally, far more liberal voters have expressed their intention to vote early or by mail, making the 3rd concern an issue primarily with Democratic voters. Thus, although we will attempt to make a “light” prediction, all three of these concerns teach us that, once again, the polling data may be inaccurately favoring the Democratic candidate, and shielding a potentially stronger outcome for the Republican incumbent.
For these reasons, we do not give our prediction much credit. Nor have we any plans to adjust our investment allocation in any significant manner prior to the election. However, for the sake of knowledge, let us share our thoughts about who will win, and why, with you. Furthermore, we will share how we may re-allocate after the election.
Since we mentioned them, please indulge a note about mail-in ballots. Absentee ballots have been used by our beloved military forces since 1861. During the Civil War, absentee ballots became standard in order to allow those who serve our country to participate in our election process. Although rumors have flooded the media as of late, there are no reports of statistically relevant mail-in voter fraud in the entirety of US history. Voting will never be perfect because it is designed, implemented, and maintained by human beings. Human begins are imperfect (excluding your team at MORWM, of course). That is why we use the term “statistically relevant.”
In 1933, Franklin D. Roosevelt said, “Let me assert my firm belief that the only thing we have to fear is...fear itself.” Indeed, at this juncture, the only thing to fear about the integrity of our elections is the fear regarding the integrity of our elections. To those intending to utilize mail-in ballots, please proceed. To those who condemn absentee ballots, you are undermining the completely valid process used to vote by our armed forces without issue for the last 160 years.
Back to the topics at hand…
To assess polling data, we first have to look at what’s driving the polling data. The first and most obvious calculation is the popular vote. As of this writing, Biden is leading in the popular vote. Coincidentally, he’s leading by exactly the amount which is accepted to be the margin for error. Thus, right now, it’s a total toss-up. We also know that the popular vote does not assure a victory in and of itself. George W. Bush, Donald Trump, Benjamin Harrison, Rutherford Hayes, and , believe it or not, John Quincy Adams all won the presidential election while losing the popular vote.
It is also noteworthy to examine why people are voting for a particular candidate. It appears that the majority of Trump supporters are voting for Trump, while most of Biden’s supporters are voting against Trump rather than for Biden.
Pew Research Center
This is important to consider because studies show that fear is a more powerful emotion than hope. This is a powerful advantage for Biden, even though large portions of his supporters aren’t even voting for him. Rather, they are voting against Trump. In addition, sources of fear have recently intensified.
In the last three months, the percentage of “strong supports” for Biden has grown while remaining relatively unchanged for Trump.
We note that Trump still has a larger percentage of “strong supporters”. This contradicts our previous comment. But a change such as this could indicate danger for Trump in his quest to seek support among undecided voters. However, we do not believe that this will affect current Trump supporters because a very high percentage of voters on both sides claim that they are unlikely to change their position prior to election day.
Since we are discussing potential shifts in support, we ought to acknowledge the political topics considered most important to voters. Among the most prevalent topics are: the economy, healthcare, Supreme Court appointments, violent crimes and foreign policy. For the purposes of this article, we are going to merge coronavirus in with healthcare concerns. Here are the actual statistics regarding which issues matter most to voters:
Pew Research Center
(We at MOR Wealth Management are disappointed that education has lost its due attention among the public.)
Given that the economy and healthcare come in first and second place, we can easily see that COVID-19 (which has affected both of these areas and, on its own, ranks #4) has taken center stage. As we can see below in the rolling poll data, Trump lost considerable ground from early March through the end of June, coinciding with the coronavirus outbreak and the world’s recognition of its severity.
Right now, the US is experiencing the third wave of the virus. 31 states are moving in the wrong direction and 10 states have record numbers of cases per day. This week, we exceeded 63,000 new cases in a single day. We expect that, if these numbers continue to grow over the next week and a half, there could be a negative impact on Trump’s campaign.
Another interesting voter breakdown is the amount of education completed among voters. We came across this while reviewing various studies conducted by the PEW Research Center.
We are not using this graph to suggest that Trump supporters are not as smart!!! That would be a ridiculous assumption and insulting to many of our readers. What’s fascinating is the extreme consistency in this data during this election season, and what we might be able to conclude from this in our attempt to predict a winner.
At first, we thought that perhaps as one’s education increases, so too does their attention to the news. This would certainly affect their knowledge of COVID-19, which is a topic that has clearly shifted support for Trump as of late. However, research proves that this conclusion is wrong, at least with local news. The PEW Research Center found that, the higher one’s education, the less likely they are to pay attention to local news. Maybe those with higher education are more interested in national news, or global news. It would certainly make sense if this were the case. Blue-collar jobs are usually more sensitive to local news, and white-collar jobs tend to be more sensitive to national news. We were unable to verify this hypothesis, so we were going to leave this metric aside…until we found this from POS.org:
Here we see that, the less education one has, the more likely they are to trust FOX as their primary source of news. And perhaps this is creating a clear and present correlation between a voter’s level of their education and which candidate they prefer. Still, as interesting as this is, we are unable to use this data effectively.
The team at MORWM makes a great effort to keep our family of clientele and readers informed. With that in mind, we try to steer our clients away from Fake News. I watch FOX News every single day. I watch many news sources, but I watch more FOX than any other single source or channel because it is so different from the rest. CNN comes in as a close second. I watch a little MSNBC, but only because I really like Brian Williams. Allow us to share with you a study conducted by Business Insider (traditionally a very conservative business news outlet) and Fairleigh Dickinson University.
In a study of 1,185 random nationwide respondents, they found that FOX News viewers were less likely to be accurately informed than people who watched no news at all!! In addition, MSNBC didn’t fare much better than FOX! The following is a chart of correctly answered questions (out of 5 questions asked) depending on one’s primary source of news. As you can see, FOX News viewers answered fewer questions accurately than those who watched no news at all, and MSNBC barely scored better.
So, to those of you who are sick of me telling you to stop relying solely on Fox and MSNBC, this should help you to understand why we are of this opinion. Now, let’s get back to the election.
So far, we’ve discussed a number of interesting findings in our research. But what does this mean in regards to the election results? In a nutshell, current events are affecting Biden more positively than Trump, and are impacting Trump more negatively than Biden.
Now, let’s look at the battleground states, break out our slide rules, and make some sense of the latest polls.
There are three particularly important things to note:
Biden leads in most battleground states.
In 7 of the battleground states that Trump won in 2016, we now see a Biden lead.
In the only two battleground states where Trump is currently leading, the lead is within the generally accepted margin of error (4%).
Altogether, this does not bode well for Trump.
Of course, we have to take much of this with a grain of salt due to what we learned four years ago. While we believe that the inaccuracy of the 2016 polling has been largely rectified, there may be new inaccuracies caused by COVID-19 and hesitation among Biden supporters to vote.
Let’s dig a little deeper and really examine why we are “lightly” making a prediction. Forewarning: This may get a little technical.
Below is a map of where we stand right now. Deep red is considered Trump-country, deep blue is Biden-land, and the lighter the shade, the weaker the support. Brown is up for grabs.
In this scenario, we gave any battleground state showing a lead of more than 4% to that respective candidate (except Pennsylvania, because PA is all over the news). Also, we gave Ohio and Iowa to Trump because he won in 2016 there by an enormous margin. Finally, we left Nebraska and Maine split.
In this scenario, Biden has 259 of the 270 electoral votes needed to win. If he wins any of the following states, he wins the election: Pennsylvania, Florida, North Carolina, Arizona, or Georgia.
In this scenario, we give Pennsylvania to Biden, because he’s leading there by almost 5 pts. In this scenario, Biden wins with 279 votes.
Here, we give Pennsylvania to Trump, and give Florida to Biden. In this scenario, Biden wins with 288 votes. This scenario shows how important Florida might turn out to be in this race.
In this scenario, we give Trump both Florida and Pennsylvania, leading to a Trump victory. These two states represent 49 electoral votes, and Biden would need to take Arizona, Georgia, or North Carolina - none of which would be an easy feat.
In this last experiment, we simply give each state to the candidate currently in the lead by any measure, while leaving Maine split. In this case, Biden wins by a comfortable lead of 360 electoral votes, or 67% of the electoral votes (see map below). This is not a landslide by any means. A landslide would be considered at least 80% of the electoral vote. For reference, George W. Bush won by 79%, and Ronald Reagan won by a whopping 98% of the electoral vote.
This last scenario points out two important, yet opposing, beliefs: 1) Trump has an uphill battle in any of these scenarios, and 2) Even with the most Biden-centric analysis, a landslide is highly unlikely. This second conclusion, combined with the potential for inaccuracies created by COVID and any potential lingering polling problems, leads us to conclude that it is too difficult for anyone to make a confident prediction.
Regardless of whether we are ready to predict a winner, there are a few things to consider as we reflect upon the market’s short-term reaction, as well as the longer-term effects the election may have on the economy. If Biden wins, we anticipate a short-term market decline, because many Americans believe that a Republican president is better for the stock market. Historically, markets actually trend up after a presidential election regardless of the winning political party. The New York Times wrote an article about this just the other day. The market does not like uncertainty. Thus, having a definitive winner supports market strength. However, it seems likely that this time may be different - especially if there is not a definitive winner right away.
The reality is that trickle-down economics has served America worse than trickle up economics; we can see that with historical stock market performance, GDP, and job creation.
Of the last four presidents, the average stock market performance on an annualized basis shows Clinton in the lead, with Obama in second place, Trump in third, and George W. Bush in fourth.
Since World War II, the average annualized return of the S&P 500 is 13% under Democratic presidencies and 8% under Republican presidencies.
Under a Republican president post WWII, The United States experienced 5 times more recessionary periods and held a higher debt load compared to GDP (61% vs 58%).
Lastly, and this is really important, average annualized job growth has been almost DOUBLE under a Democratic president than under a Republican president (2.3% vs. 1.2%).
For full disclosure, this last statistic does not include Trump. However, Trump has negative job growth, so the numbers are therefore not biased towards Democrats. To avoid the effect that COVID has had on Trump’s negative job growth, we will leave out the fourth year of his first term; Obama had stronger job growth in his last three years in office than Trump had in his first 3 years of office, before COVID.
This article is not meant to campaign for Biden. I am not suggesting that a Democrat or a Republican president is better for the economy. What I am demonstrating to our readers is that Republican presidents and trickle-down economics are NOT necessarily better for the economy. In fact, recently, a bipartisan group of six former Secretaries of Commerce has endorsed Joe Biden for president. The endorsement letter was written by both Republicans and Democrats, and includes signatures from Carlos Gutierrez, Penny Pritzker, Gary Locke, Bill Daley, Norm Mineta and Mickey Kantor.
If we are not campaigning for Biden, then why are we harping on this point? Well, we started this subsection to hypothesize what could happen with a Biden win. Although our public is misinformed in thinking that a Democratic president is worse for the economy, it is still the assumption that many Americans have. Therefore, we suspect that a Biden win will result in a market sell-off. If that happens, we may be buyers: big and bold buyers. When something good happens that is perceived to be bad, that cognitive dissonance provides an opportunity for those that can see the forest for the trees. Assuming, of course, that the country hasn’t fallen to its knees due to COVID.
What have we concluded?
Biden is likely to win.
The market may fall in the short run.
The economy is likely to improve in the long run, which should pull the stock market up.
We fully realize that none of the first three things may happen, so, we will not accept any teasing if we get this wrong. Well, maybe a little bit of teasing…
As you can see, we are not confident enough in our prediction to really take ourselves seriously. Nonetheless, this was an enjoyable article to write because some of the data is fascinating. We do, however, have a few suggestions:
VOTE! It is your civic duty. The government may make all the decisions, but it is we the people who put those representatives in their seats.
Stop relying solely on FOX News and MSNBC.
Encourage everyone you know to vote.
And lastly, don’t not vote.
We hope that you’ve enjoyed this article. If you believe that we’re right, you can bet on the US election at DraftKings.com. How pathetic is that! (Don’t really do that, please.)
We wish you all a wonderful weekend.
-PoliNerds at MOR Wealth Management
Matthew Ramer, AIF®
Principal, Financial Advisor
MOR Wealth Management, LLC
1801 Market Street, Suite 2435
Philadelphia, PA 19103
P: 267.930-8301 | c: 215-694-4784 | f: 267.284.4847 |
601 21st Street, Suite 300
Vero Beach, FL 32960
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