As the saying goes – what a difference a month makes. On the morning of July 21st, 2024, Joe Biden was still the presumptive Democratic nominee for President and Donald Trump was riding the crest of a successful Republican National Convention, which had come in the immediate wake of a failed assassination attempt on the former President. Polls suggested that not only was Trump likely to get reelected in November, but also that several purple-blue states such as Virginia, New Hampshire and New Mexico were potentially in-play, as Biden’s support continued to wane post his June 27th debate performance.
Fast forward nary 30-days and what seemed like an inevitable Trump 2.0 in mid-July now seems to be completely upended. Following Biden’s withdrawal from the race, Vice-President Kamala Harris has reinvigorated the Democratic party, flipping what looked to be a three or four point national popular vote deficit to an advantage of close to that amount. While much can still change in the next 2+ months, the 2024 race seems to have forged a new identity similar in form to the 2016 and 2020 races with the Democrats likely to win the popular vote, but the Electoral College still very much up for grabs. With that in mind, let’s get to this week’s brief missive:
U.S. Election 202
With roughly 75-days to U.S. Election Day, we thought now would be a good time to not only take a “state of the Union”, but also refresh some of us on how U.S. elections for President work. We call this “202” because we have probably all been “101’d” to death over the past few elections, so we will try to dispense with the very basics.
The Electoral College
While elections in most of the rest of the world are dependent largely on who wins more votes than the other guy/gal, the U.S. President, as we all know, does not. Rather, each state holds a popular vote and with two exceptions, the winner of the popular vote in that state wins all of the electoral votes that state has to offer. So, if you win a state by one vote and it has 25 electoral votes, you get all 25 of those electoral votes. The two exceptions are Maine and Nebraska, which allot electoral votes in part by Congressional district. In these states, the winner of the statewide popular vote gets two electoral votes and the winner of each Congressional District (two in Maine and three in Nebraska) gets an electoral vote. So, in other words, in Nebraska, if you win the overall state popular vote and two of three Congressional Districts, you would get four of the five state electoral votes, while your opponent would get one (for the lone Congressional district that he/she won).
While there was some weirdness in the 1800s as a result of the Civil War, pretty much every Presidential Election from George Washington to Bill Clinton saw the winner of the national popular vote also winning the Electoral College. However, since the 2000 Election, two candidates that lost the national popular vote – George W. Bush in the 2000 Election by ~0.5% and Donald Trump in the 2016 Election by ~2% - emerged as the Electoral College winner. Note that you must win a majority of Electoral Votes – currently 270 of 538 – to win the Election.
The 2024 Election
Similar to most of the elections held since 2000, it appears that the 2024 Election will potentially hold a popular vote/electoral vote question. Vice-President Kamala Harris currently holds a ~3% edge in national polls; however, because her lead in very populous states such as California and New York skews her popular vote advantage, there is still a viable path for former President Donald Trump to win the Electoral College, despite losing the national popular vote. As for how the Electoral College currently stands, let’s take a look at a table and then comment:
Based on current polls, Donald Trump seems likely to secure at least 218 Electoral Votes, while Kamala Harris seems likely to secure at least 226. 94 Electoral Votes spread amongst eight states are very likely to determine the next President with Harris needing to win 44 of the 93 and Trump needing to win 52 of the 93 to be President.
Is it possible there are some surprises in the above? Of course, but most polling methodologies have been cleaned up post some big misses in the 2016 and 2020 elections, so we are unlikely to see anything in red (won by Trump in 2020) other than North Carolina or the second Congressional District in Maine switch to blue or anything in blue (won by Biden in 2020) switch to red other than PA, GA, MI, AZ, WN, or NV. One caveat we would add is that there are a few states – TX, FL, VA, et al – that are polling outside the margin of error, but only marginally so. Given we have seen a big shift in polls since Biden dropped out roughly one month ago, it is possible that a few states that do not currently appear to be in play, shift in the coming weeks.
What happens if there’s a tie? There’s not going to be a tie, so don’t worry about it. If you’re worried about it, try this.
Market Implications
While investors like to ascribe a lot of benefit to who wins the White House and the performance of stocks, there is really not much to be gleaned from history. Most people might be inclined to believe that Republicans, because of their pro-business, low taxes and deregulation tendencies, would be better for investors, but history has not really borne this out:
As you can see, going back ~100 years, returns under Democratic Presidents have been significantly higher than under Republican Presidents. We would note that the composition of Congress plays a big role in this with one party controlling all of the keys (i.e., both houses of Congress and the White House) generally a worse outcome than some mixture of control within government:
While it’s a relatively small sample set, we would note that there have been 16-years over the past 104 in which there has been a Democratic President and Congress at least partially under Republican control (the most likely outcome should Harris prevail for reasons we will not get into today) and all 16 have generated positive returns.
Bottom Line: While the last month has brought unprecedented change to the U.S. Presidential race, we would not be surprised to see further significant shifts over the next ~75-days. History suggests that a Harris victory, especially if it is accompanied by some Republican control in Congress, would be best for investors; although, we acknowledge that things such as the economy and earnings growth matter more than political winds.