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In previous blogs about the 2024 U.S Presidential Election, we discussed various considerations and implications for investors. These included how the different election results could impact asset classes and global markets, and the importance (and significance) of the election for the Canadian economy.
For this blog, since so much has happened since the last blog – an assassination attempt and an entirely new Democratic Party candidate - let's look at how things have changed polling wise and what factors we should look closely at as we approach election day.
What are recent polls saying?
While the phrase "the only poll that matters is the election day poll" holds a lot of truth, it's important to look at recent polls to gauge what we could likely see.
Recent polls¹ show Kamala Harris is ahead by 2 points on average. However, Democratic candidates need to lead by at least 3 points (given state distribution of votes). So, it looks like a virtual tie at this point. However, when you look at the past, you can gauge what you can expect from now until November. In August 2016, Hillary Clinton was ahead by 6 points (and just before election day she was up 4 points), and in 2020 Joe Biden was also up by 6 points in August (and 8 points in November). If history is a guide, the narrow lead in the polls enjoyed by Harris shouldn’t be relied on too heavily for the final result as we approach election day.
Seven swing states – the other 43 are non-factors
One key point to remember is that of the 50 states in the U.S, realistically 43 don't really have an impact on the election result. It's up to 7 swing states, and in these states, the polling can be messy.
A key implication is that 43 states (with well over 80% of U.S voters) will be a non-factor during the campaign given their innate party leanings. To illustrate, in 2020, 96% of campaign events (204 of 212) occurred in the most competitive 12 states; the other 38 states were almost entirely overlooked. For example, in 2020 Biden won California by 29 points and New York by 23%, while Trump won Wyoming, West Virginia, North Dakota, Idaho, and Oklahoma by more than 30 points².
Both parties largely "ignore" these states, as the likelihood of moving the needle is essentially zero. Where did they focus time and money instead? Only eight states were decided by 5% or less in 2020, down from 11 states in 2016. In 2024, it looks like just seven states matter.
If past is prologue, the election will be very close. Three states were won by less than 1% of voters in both previous elections. Trump won Wisconsin by 20K votes in 2016 and lost it by 20k in 2020. 80,000 votes determined the 2016 election (out of 138 million votes cast) and even fewer, 42,000 determined 2020 (out of 155 million votes cast). This November could well come down to a couple thousand votes in one of these states, with Pennsylvania currently most likely to decide the election².
What are the policy implications for investors?
Policy is just one input to a much larger mosaic from an investment standpoint. There are a lot of other considerations that matter much more than policy, and whether it's a Democrat or Republican President, a majority or split Congress, or any other combination, there's not a massive difference in market performance over the long term. Still, it's important to be aware of some of the possible implications when looking at the policy differences between the two parties:
Fiscal policy: taxes vs spending - deficits don't matter
- A Republican sweep would likely lead to more tax cuts, including extending the 2017 tax cuts. The idea is to bolster economic growth, but the large loss in tax revenue may be more detrimental than the benefit of the incremental economic growth.
- A Democratic sweep would likely result in a higher tax rate on corporate profits and on household income ($400,000 and up households). Also, higher government spending via child tax credit, earned income tax credit (EITC), subsidized childcare and affordable housing.
Tariffs: The U.S President can invoke country specific tariffs unilaterally
- The previous Donald Trump administration spent years slapping tariffs on Chinese goods and targeted Canada, Europe and other American allies. He would look to possibly expand on these tariffs. For U.S consumers, a 10% universal import tariff being promised by Trump is a major hit for lower income households. It is also inflationary and could reduce real GDP by 1.2 to 2.2% (depending on retaliation).
- The Democrats have left most of Trump's tariffs in place over the last four years and have expanded some. Biden’s tariffs on Chinese imports are much more narrowly tailored, specifically toward the industries the administration’s been trying to promote with other legislation.
Tech: Regulation, antitrust, national security
- The Republicans are fighting against content moderation, which wouldn’t bode well for some big tech including Google and Meta.
- The Democrats would look to moderate AI regulation.
Staying focused on your goals
Arguably the most important message when it comes to the outcome of the U.S Presidential election is to view your investment plan through a long-term term lens. The direction of the market, no matter the outcome, is more likely to be driven by fundamental factors like interest rates and corporate earnings. Sure, the possibility for short term market gyrations based on headlines and political rhetoric can be expected, but longer term, asset values and returns are largely driven by fundamentals.
We are off to the races. Let's see what happens at the finish line in November.
¹ Bloomberg Finance L.P, Wall Street Journal Poll
² Bloomberg Finance L.P, Congress.gov
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