« Back

Investment Strategy
by Larry Adam
Chief Investment Officer, Private Client Group

Weekly Headings

October 2, 2020

Key Takeaways

  • Some polls suggesting a more closely contested race
  • Challenger Biden still leading in all six swing states
  • Strong economic data & earnings may help Trump’s bid

It’s the final countdown! Our country is just 11 days away from Election Day and determining our next president—incumbent President Trump or challenger and former Vice President Joe Biden. Between the flared debate tensions and President Trump testing positive for COVID-19 on the campaign trail, the 2020 presidential election has arguably been one of the most contested and unique battles for the presidency in history. The financial markets have been measuring the odds of the race in anticipation of the winner’s intended policies, and both polling (7.9% national lead) and betting markets (63% probability of victory) currently favor the former Vice President. Our Washington Policy Analyst, Ed Mills**, gives Biden the overall edge as well, but 2020 has been full of surprises and 11 days is an eternity in the political world (still time for an October surprise)! Below are the key polling, capital market indicators and other developments to monitor as we approach election day:

  • #1: National Polls | Nearly all national polls are predicting that Biden will become our 46th president, but there is variation amongst the underlying polls. A few recent polls have Biden’s lead at or north of 10%, but others suggest a smaller scale of victory of only 3-4%. After factoring in the margin of error, the final result could be a substantially tighter race than currently anticipated. Regardless, national polls are less important as the winner of two of the last five presidential races has lost the popular vote.
  • #2: Key Swing States | Success in the swing states will shape the electoral map and determine the winner. While Biden currently leads in all six (AZ, FL, MI, NC, PA, and WI) according to most polls, a few of these states representing 60 electoral college votes are at or approaching the margin of error for Trump (FL, MI, and NC). Interestingly, the current deficit for Trump is not dissimilar to the lead Clinton had in 2016 at this time. According to Ed Mills**, North Carolina could be the bellwether for the results as both the presidential and Senate race remain very close and North Carolina begins its vote count prior to election day.
  • #3: The Ohio Factor | While Ohio is not regarded as a ‘swing state,’ its historical predictive power is legendary. Despite trailing in most national polls, President Trump is currently leading in the betting markets (69¢) in Ohio, which has predicted the winner in each election since 1964 (the last 14) and has called 29 out of the last 31 elections. It is also important to note that no Republican candidate has ever won the presidency without capturing the state of Ohio.
  • #4: Economic Data Releases | Using history as a guide, the economy should be a headwind for President Trump, as no president in the post-World War II era has won reelection when a recession occurred in the two years preceding the election. Despite this, Trump’s approval rating on the economy remains above 50%, and this figure will likely be further supported by jobless claims falling to the lowest levels (787k) since March this week and the impending release of 3Q20 GDP (October 29), which is expected to be the best quarter of growth on record (Raymond James estimate: 30-35%). However, these positive data points may be too late to boost President Trump’s reelection prospects, as ~51 million ballots (~37% of total 2016 turnout) have already been cast.
  • #5: Equity Market Performance | President Trump needs to hope the recent equity market rally continues, as the 3-month return prior to the election has predicted 20 of the last 23 elections (for this election, the S&P 500 demarcation line is 3,294), and no Republican incumbent has lost his reelection bid when the S&P 500 was positive over this same time frame. While much of the recent rally has been driven by optimism surrounding the economic recovery and vaccine development, it may be the 3Q20 earnings season that propels equities higher in the near term. Next week is the busiest week of earnings, with 185 companies representing more than half of the S&P 500’s market capitalization set to report, and this list includes Alphabet, Amazon, Apple, Facebook, and Microsoft. So far, the reports have far exceeded expectations, with 83% of companies beating earnings estimates versus the 20-quarter average of 73% with an average beat of ~16%, well above the 20-quarter average of ~6%.
  • #6: A COVID-19 Surge | After his own diagnosis, Trump’s COVID-19 approval rating fell to a record low. With hospitalizations in an upward trend, the positivity rate climbing and the highest daily case increases since July, the trends could be detrimental to his approval rating. Moderna reached its target enrollment for its Phase III vaccine trial this week, but with production still months away (if effective and safe), worsening COVID trends could impair in-person voting (versus mail-in) which hurts Republicans.
  • #7: A Stimulus Compromise | With nearly 8.4 million continuing unemployment claims, many citizens are anxiously awaiting additional government aid. Since a second round of stimulus checks is one of the few items both parties agree upon, the receipt of further aid ahead of Election Day may improve voter sentiment. Between the short timeframe, competing political agendas, and a still vast divide on top issues (e.g., aid for state and local governments, limited liability protections for businesses) a substantial compromise would need to occur and more likely than not the final bill will require approval after the election.

View as PDF


All expressions of opinion reflect the judgment of Raymond James & Associates, Inc., and are subject to change. Information has been obtained from sources considered reliable, but we do not guarantee that the material presented is accurate or that it provides a complete description of the securities, markets or developments mentioned. There is no assurance any of the trends mentioned will continue or that any of the forecasts mentioned will occur. Economic and market conditions are subject to change. Investing involves risk including the possible loss of capital. International investing involves additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. These risks are greater in emerging markets. Companies engaged in business related to a specific sector are subject to fierce competition and their products and services may be subject to rapid obsolescence. Past performance may not be indicative of future results.