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Calling It For Joe

Updated: Jul 20, 2023

I hereby call the upcoming election in favor of Joe Biden.

(I don’t like it one bit. This idea of having to choose between the pathological narcissist who genuinely seems to think that corruption and insolence are virtues and a challenger who is senile and just as corrupt as the other guy except maybe he covers it up a bit better is sort of repulsive to me, just as I’m sure it is to you.)

However, there is a lot of empirical evidence for my rationale that this election may already be settled. I’m a financial advisor, not a political pundit, but data is data, and I think investors need to start positioning their portfolios for a Biden presidency.

Since 1928, the stock market has accurately predicted the winner of the election 87% of the time and every single year since 1984. It’s quite simple: when the S&P 500 Index has been higher the three months before the election, the incumbent party usually won, while when stocks were lower, the incumbent party usually lost.

That’s a pretty overwhelming number, but there is a widely held circle of thought that online betting markets may be even better at forecasting the U.S. presidential election outcome-- and the numbers on the betting websites are already pretty dire for the incumbent. and the University of Iowa’s Electronic Markets both currently reflect a probability of a Trump re-election at just 41%.

According to an annual survey recently conducted by DataTrek Research, 48% said they expect Joe Biden to win the presidency, compared to 43% who foresee a Donald Trump victory, and political expectations weighed heavily on investors’ general market views. DataTrek co-founder Nicholas Colas commented, “Respondents who said they believed Trump would win were twice as likely to think U.S. equities would rally by double digits into the year end."

There are reasons why Trump's approval rate is slipping fastest in the 500 counties where Covid-19 deaths have exceeded 28 per 100,000 people, as Pew Research polls show. Older voters who typically trend conservative are abandoning him. According to RealClearPolitics, Joe Biden is leading by more than 6 percentage points in Trump battleground states like Arizona and Florida. Jacksonville, Florida, where the president relocated the Republican National Convention, had the fastest-growing rate of coronavirus of any metropolitan area in the U.S. last week.

There are a lot of fundamental reasons, as well as technical ones, to expect a pullback in the stock market, and the realization that we may end up with an executive branch and legislative branch both run by the Democratic Party, just like we got from the 2008 election(!), is only one of them. I’d argue that it’s the biggest, but it’s only one. The recent stock market rally has been somewhat disconnected from Main Street reality, and we expect a reversion to the mean over the second half of the year. We expect more small businesses to fail, a new wave of lay-offs, the effects of government stimulus to abate, and for continued Covid-19 spread. And then, whether I like it or not, we expect Joe Biden to get elected.

Investor allocations to domestic equity bounced back from March’s dip to levels close to their long-term average, but cash positioning remains elevated. We continue to advise investors to re-risk portfolios toward their strategic asset allocation, but with uncertainty about Covid-19, elections and earnings all persisting, we emphasize a slow and steady return to target weights as the best approach to avoid swings in portfolio volatility.

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