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Stocks gained on Friday, led higher by earnings-surprise-superstar techs. The US economy only added 12,000 new jobs last month, delivering far less than expected by economists, who must be sore from all the head-scratching.
Final mile. There is a lot of important information regarding the economy and your portfolio flying around these days. After a marathon week of earnings and economic releases, Wall Street had one day of rest before New York’s streets were jammed up by marathoners – for real. Keeping with that theme, election season, which kind of really started in late July when President Biden stepped aside to allow now-candidate Harris to carry the banner for the Democrats, has been a bit of a marathon. If you follow the big marathons, they are typically dominated by a small handful of folks who simply run at car-like speeds for like 2 hours, leaving everyone else quite literally in the dust. Not exactly an exciting race. In sharp contrast, we have had one hell of an election race – er, marathon leading up to today. Yes, today, is the day before election day.
Last week, we had a number of key economic figures, ones which the Fed itself has anointed as its important go-to’s when it comes to rate decisions. Those two important numbers came in thumbs up for a rate cut later this week. Inflation appears under control and the labor market is not running hot. There were also a number of key earnings announcements last week. Five of the Magnificent-7 announced magnificent earnings but only two were applauded by markets, because – well, the bar is high, and investors expect sheer excellence at these valuations. After Friday morning’s economic number was digested, the markets quickly turned their attention to the elections. How do I know? Just look at 10-year Treasury yields. They initially responded to Friday’s number by falling, but ultimately turned around and gained on the day, eventually dulling the early-morning rally in stocks. The yield climb was principally due to fears of rising deficits under a potential Trump win. To be clear, it is not clear that a Harris win would be any better for the deficit either.
Now, I hate to do this but given that it is the last day before elections, and because said elections are clearly overhanging the market, I will give you the last word. Typically, we would watch the polls really closely leading up to an election but given that they have not been a reliable source in the past few, many of us are wanting for something else. Gamblers have always bet on election results, but now it is no longer limited to some unshaven miscreant making a phone call to a booky from his beaten-up car in the parking lot of a racetrack. We now have public betting sites where average, everyday folks can bet on all sorts of things to do with the elections. No bookies required, parking lots are not recommended, and shaving is optional. I am not a gambler, but I would surely like to know what those gamblers are betting on, and the good news is that with these new online outlets, we can see what they are betting on.
Now, to be clear, just because more people are betting on one candidate over the other doesn't mean that a candidate will win, but it does give us, in my opinion, a good idea of how sentiment is trending. No one likes to lose money, so we can assume that most folks are betting on which candidate they expect to win. Enter: three highly watched betting outlets offering political bets, PredicIt, Polymarket, and Kalshi. There are slight nuances for each. While PredicIt is more traditional and familiar and it operates under some very strict rules, Kalshi has CFTC approval to operate as a regulated commodity exchange, and Polymarket operates on the blockchain where investors use cryptocurrencies to bet. There are clear benefits and drawbacks to each, but alas my note is not about helping you select a betting market to place your bets, rather, I am going to share four charts so you can see where each outlet is this morning on the results of tomorrow's presidential election. I will start with the most traditional Real Clear Politics Polling Averages and then move to the betting venues. Have a look and then follow me to the close.
Polling averages show the candidates neck and neck and within the margin of error. An early lead by Harris disintegrated in mid-October giving up the potential win to Trump, but a late-month surge has them near even.
PredicIt shows a close race with the lead changing daily. It’s sprint time and a smile for the cameras – “CHEESE!” Harris’ late-October surge continues to place her as the winner by a 4% margin. Based on history, this can change in an instant, however, as with markets, momentum is a hard force to break, and the chart shows momentum for Harris.
Kalshi, the new kid on the block, only has data for a few weeks, but it is enough to see how Harris came from behind and briefly – very briefly took the lead before Trump opened up a 5% gap. Similar to PredictIt, we wonder if the longer-term momentum trend from Harris will continue or if the trend has reversed.
Polymarket shows the Trump breakaway in early October reversed in the final days of the month with a solid surge from Harris. The surge though, was not quite enough to get her the lead and in the past few days, some more light has appeared between the candidates. With a now 11% lead, Trump is predicted on Polymarket to carry the election.
Are you now even more confused about who might win tomorrow? Pollsters are a coin toss while 2 out 3 betting venues show Trump coming out on top with the remaining one giving the White House keys to Harris, but with close margin. I want to, again, caution you that these are the results of betting selections. Remember that the “online betting community" may not represent a good statistical sample of the country, and that like any illiquid market, they can be swayed quite easily with trade surges. However, we can walk away with a common theme that Harris has had a recent resurgence. Whether it is enough to affect the actual votes that are being cast, no one knows.
Finally, let’s just briefly discuss the implications of a win from either side. I have spent the better part of the last six months trying to figure out what real policies were offered by both sides, assess the probabilities for each side to win, and finally the probabilities of any of those “election promises” to come to fruition. Both parties were heavy on the promises, and ultimately both sides will likely increase the deficit. As aforementioned, the bond market has certainly signaled that. With respect to any of the incentives or tax cut promises, if you are in any of those groups that has been made a promise, I would not spend it until you see it 😉.
Finally, the one thing at this point that has Wall Street concerned is the potential for the election results not to be clear by the time you wake up on Wednesday. Based on all of what I presented to you today, that possibility seems very likely. That is likely to cause some volatility until things are settled. But wait, we can look back at what happened when Bush and Gore had to go to the Supreme Court to resolve their close race which came down to “hanging chads.” It took 36 days! The S&P500 fell by -4.24% over that period and the VIX bounced between 25 and 27, eventually remaining unchanged, but it was already bouncing around prior to the election. Will this time be different? Let’s pick this up on Wednesday morning.
FRIDAY’S MARKETS
NEXT UP
- Factory Orders (September) may have slipped by -0.5% after a -0.2% decline in August.
- Durable Goods Orders (September) are expected to show a -0.8% decline, in line with the prior estimates.
- Later this week: lots of earnings, ISM Services Index, University of Michigan Sentiment, and FOMC Meeting. There are notable companies releasing earnings. Don’t get lost in the noise. Download the attached earnings and economics calendars to stay ahead of the competition.
- This morning, Constellation Energy and Zoetis beat EPS and Revenue estimates, while Marriott International came up short. After the closing bell we will hear from Diamondback Energy, Realty Income Trust, Illumina, AIG, Hims & Hers, Palantir, Vertex Pharmaceuticals, Lattice Semiconductor, and Win Resorts.
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