Elections & markets: The state of the race

Dave Donabedian, CFA
August 27, 2020

In our election series, Chief Investment Officer Dave Donabedian, CFA, examines the past and present relationship between elections and financial markets to help shape a view into potential outcomes leading up to the November appointments.

As the Republican convention winds up, the two parties are presenting a divergent assessment of the current state of the nation, and an even more different vision for the future. With barely two months to go before the election, we assess the state of the race.

Former Vice President Joe Biden has a significant, but not insurmountable, lead in national polls (Exhibit 1). Prior to COVID-19 and the ensuing recession, Biden typically had a small polling lead, often within the margin of error. His lead has steadily grown since then, as the economic collapse that ensued weighed on President Trump’s approval ratings. The president’s net approval rating has fallen from -4% in late March to -11% in late August.1

Exhibit 1: Average of presidential election polls

U.S. electric sector emissions show by far the largest declines in recent years

Source: fivethirtyeight.com, as of August 25, 2020. Accounts for each poll’s quality, sample size and recency.

The president is behind in this race, but his campaign has accurately pointed out that he was well behind Hillary Clinton at this point four years ago. One difference—and it could be argued as an advantage or a disadvantage—is that President Trump is now an incumbent with a track record. Four years ago, he was a celebrity with no policy record to defend. At this point in his presidency, he is likely to tout three solid years of economic growth and wage gains (before COVID-19), tax reform, trade deals and toughening U.S.-China relations; however, he currently presides over a pandemic not yet under control, a double-digit unemployment rate and a highly uncertain outlook.

Another argument often made is that national polls should be ignored because they were so wrong in 2016. Though, in reality, they were pretty accurate. The final week of polling four years ago showed a 3.1% average advantage for Hillary Clinton. On Election Day, she won the popular vote by 2.1%.2

A better argument is that national polls sometimes measure the wrong thing. Donald Trump secured a comfortable victory in the electoral college (306 to 232) by winning a handful of large swing states by very small margins. Exhibit 2 shows the 2016 victory margin in those swing states for Trump versus where he stands in the polls today.

Read more

This is the second in a multi-part series:

Part 1: What history tells us

Dave Donabedian is chief investment officer of CIBC Private Wealth Management, serving in that capacity since 2009. His responsibilities include chairing the Asset Allocation Committee, as well as providing oversight of internal investment strategies and the external manager selection platform.

 

1 fivethirtyeight.com, as of 08.25.2020.
2 realclearpolitics.com, as of 08.21.2020.

CIBC Private Wealth Management includes CIBC National Trust Company (a limited-purpose national trust company), CIBC Delaware Trust Company (a Delaware limited-purpose trust company), CIBC Private Wealth Advisors, Inc. (a registered investment adviser)—all of which are wholly owned subsidiaries of CIBC Private Wealth Group, LLC—and the private wealth division of CIBC Bank USA. All of these entities are wholly owned subsidiaries of Canadian Imperial Bank of Commerce.
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