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US Presidential election

Trading the 2024 US Presidential election

Chris Weston
Head of Research
9 Nov 2023
With the US election in our sights, Pepperstone will provide regular commentary on proceedings to help you cut through the noise, and help you express your view on the markets. See our first edition laying out the key timelines and the big picture considerations.

Overview – what’s at stake?

On 5 November 2024, we will see the Republican and Democrat Presidential nominee battling it out to get the required 270 electoral college votes to become President of the United States.  

In 2020 Joe Biden secured 306 electoral college votes, vs 232 votes for Donald Trump. On current polling, it appears as though neither Biden nor Trump have any serious challengers in the primaries and unless we see a surprise bid emerge the odds are stacked for a re-run of 2020; a situation many swing voters will not be at all enthused about.

The outcome of the election will likely hinge on 7 swing states, where the majority in 2020 was within 3%. These include Georgia (16 electoral college seats), Arizona (11 seats), Pennsylvania (19 seats), Wisconsin (10 seats), Nevada (6), North Carolina (16) and Michigan (15). 

Control of the Senate

The make-up of Congress is also to be decided on 5 November. Currently, the Democrats control the Senate with a 51-49 seat majority. In November 2024, we will see 33 of the 100 Senate seats up for re-election, where 23 of those are currently held by Democrats and where 3 of those could easily be lost. The remaining 10 seats are all expected to remain firmly in Republican control.

The Republicans can take the Senate by achieving a net gain of 2 seats, or by Trump being re-elected and seeing a net gain of 1-seat. 

Control of the House

The Republicans control the House with a slim 4-seat lead with a split of 207 to 203. Unlike the Senate vote, all 435 Congressional Districts will offer seats for re-election - subsequently, 218 seats are needed to obtain a majority. 

Timeline – dates to consider:

We will get a sense of whether there is a serious challenge to Biden or Trump in the primaries. The Republicans get things going on 15 January with the Iowa primary. The Democrats get their campaign going with their first primary in South Carolina on 3 February.

‘Super Tuesday’ on 5 March is the key date where we see some 31 primaries (across both the Republicans and Democrats side) in one day. Expect this to mark the point where market interest heats up.

After ‘Super Tuesday’ we should have a firm idea of who has made a challenge on Biden and Trump going into the party conventions – Republicans (15-18 July) and Democrats (19-22 Aug). The presidential nominee for each party will be announced here. 

There will be a series of head-to-head televised debates into the 5 November election.

What are the chances it proves to be a volatility event?

Many will remember the incredible moves across asset classes through prior elections and notably the 2016 election is still fresh in some traders’ minds. Traders have historically been poor at pricing risk around elections, but this time around unless we see real public tension and social uprising between the voting left and right, the prospect of extreme volatility this time around seems lower than prior elections.

Assuming Trump is the Republican nominee and runs against Biden then one can assume it will be an ugly encounter and there will be no holding back. However, unlike 2016 and 2020 both candidates are well-known entities to the market and market participants will be more comfortable in their ability to price risk into the event. 

There could be increased volatility, or trending conditions, notably if we were to see a blue or red wave - where one party obtains a clean sweep of the White House and both chambers of Congress. This outcome would increase the ease of passing more controversial legislation.

One observation will be Trump’s continued preference for tax cuts, especially with his tax cuts rolling off in 2025.

Tax cuts won’t sit well with House Reps who are deeply opposed to increased spending and want stringent fiscal discipline. The deterioration in the US fiscal position and the incredible increases in the interest expenses have become not just an increasing concern college college-educated voters, but also progressively with markets. 

Trump is also proposing a 10% tariff on all imported goods. This is controversial as protectionism, and trade wars may become a clear market theme again.

Key election agenda items

The economy will always be at the heart of the debates. While it has been something of an obsession for many in trying to time a US recession, throughout 2023 the real story has been economic resilience. How the economy evolves through to the election will be important as we roll into Q2/Q3 2024, where we will need a clearer view of the labour market, inflation, and the health of the consumer – all factors that will be used and spun differently by both parties.

Abortion and women’s rights will be a big focus and a key vote determinant. Immigration, aid to Ukraine and Israel and international trade relations will also feature heavily in the debates.

When will the markets start to react?

At this stage, there are too many assumptions being made to accurately price future risk, and there are many other market themes that consume our immediate focus. One of these risks is a potential government shutdown from 17 November which could put a temporary halt on wage payments, and depending on the duration, could shave 20bp off US GDP for every week it lasts. 

The probability is that the markets will fixate and put their full attention on the elections after the party conferences (the Republican conference is between 15-17 July & the Democrat’s conference is between 19-22 August) and as we push towards the live head-to-head debates. We should see this in hedging flows, and notably VIX futures October contract will be a good guide, where we can look at the premium it wears to the September futures contract.

Is a Trump vs Biden contest all but assured?

The polls certainly suggest this to be the case, but there is enough time for an alternative candidate to gain real traction, and we watch with interest if someone makes a play through the primaries. 

On the Democrat's side, despite Biden’s approval rating falling away in recent weeks – he remains far ahead in the polls. A challenger could emerge as Biden’s age is a factor for many voters, but it is not immediately clear who that could be. 

Donald Trump, while facing multiple legal challenges, and having a poor favourability rating (54.5% of Americans hold an unfavourable view of him), is still 42ppt ahead of DeSantis in the national polls. We could see a challenge from Nicky Haley, but Trump is the clear bookies' favourite at this stage to be the Rep nominee. 

So, on current polling and betting markets, a re-run of the 2020 election looks likely. 

We will update our election coverage and how the market may fare as developments play out.

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