Menu
Date: November 3, 2020

Our Election Model Has Spoken – And a Guarantee Thrown In

As I often do when a long-awaited event is here, Kenny Loggins said it best, “This is it, make no mistake where you are… The waiting is over”. While we may not know the election results by the time I get back to the office tomorrow morning, at least it will be over in almost every state. More on that later.

Our own internal election model is based on three different series of stock market returns with varying weights to determine if the incumbent party will win or not. This model has correctly predicted all elections with the exception of 1992. It is 100% quantitative and not based on my feelings, my thoughts nor my opinions. My theory in creating the model was similar to how stock market behavior forecasts economic activity three to six months down the road.

In 2016 when the major polls were all strongly forecasting a Clinton victory and blue wave, our election model called for a Trump upset, no matter how much I didn’t believe it. I said the same thing on Fox Business, NBC in CT, Fox in CT and ABC in CT. On the blog I wrote,

“For the past few months, I have used Dow 18,000 as the general level to watch. The higher stocks trade above that level, the more likely Hillary Clinton would be our next president. The lower the Dow trades below 18,000, the more likely Donald Trump becomes our next president. Interestingly, as the polls have swing wildly since the DNC convention, stocks have basically held 18,000 as the area of equilibrium.

Based on data that will drop off today and Monday, the model says that Donald Trump will become our 45th president, which certainly runs counter to what the polls are current indicating.

Now, a few words of opinion. Based on the electoral map, I still cannot see a path to a Trump victory, 270 electoral votes. He would need a Truman-like outcome, but again, that’s a personal view not based on the research.”

And today, the election model is forecasting that Joe Biden will become the 46th President of the United States.

Again, that’s not an opinion or my feelings. It is based on data and data is not foolproof. Interestingly, the stock market is trying really hard to narrow the gap between Biden and Trump and Rasmussen now shows Biden by 1%. To inject my opinion, roughly 100M votes were already cast before the election and those are likely dyed in the wool party supporters. It’s also 100M votes that won’t be influenced by recent stock market action.

If you have been reading my election issues over the past week or attended my Election 2020 webinar last week you know what the other data says.  On Joe Biden’s side is that no incumbent in the modern era has been reelected with a recession or a bear market in election year. The last three elections in years ending with “0” saw incumbents lose. Approval ratings on July 31 show Donald Trump at 42% and Barack Obama had the lowest rating of 47% to be reelected. On Trump’s side, no original Democrat frontrunner has ever won the general election.

One thing is for sure; this election is going to see at least one tried and true predictive study be wrong for the first time. I guarantee it!

Several months ago I started offering comments in the media that the presidency may not be the single most important prize in this election. Yes, I know that without the White House, legislation is unlikely to get passed and executive orders without Congress occur. However, regardless of which party wins the presidency, control of the Senate is paramount, at least for the Democrats. Without control of the Senate, a Biden agenda is dead on arrival and gridlock continues. Market-wise, that is a favorable outcome. Conversely, if Trump somehow wins, the House is likely to remain blue and gridlock will be theme through 2022.

Through Monday’s close the presidential portfolios have shifted a bit towards Trump. While they are based on performance data, there is a subjective element to creating the actual portfolio.

Biden

1 week -1.41%
2 weeks -3.29%
3 weeks -4.93%
4 weeks -1.64%

Trump

1 week -1.01%
2 weeks -3.11%
3 weeks -2.56%
4 weeks +0.06%

Finally, regardless whether your candidate (s) win or lose, is it too much to ask that people come together to support the outcome and the administration? Disavowing an election serves no good. I will absolutely support the next President and hope he has tremendous success because if he does, the country will move forward and everyone wins.

Paul Schatz, President, Heritage Capital
Author:

Paul Schatz, President, Heritage Capital