Ignore election theory, this one’s too uncertain

  • This year’s election breaks the mould in a number of important ways
  • Markets seem to be agnostic as to which party is in control of the White House.
  • However, likely that uncertainty will drive markets for time-being
  • Polls might be victim to ‘the Bradley effect’
  • Hillary is seen as lower-risk and less volatile than the Republican.

hilary-and-trump

For most of us this election is like nothing we have ever seen. Frank Holmes agrees , arguing that we need to, “Forget Everything You Know About Presidential Elections”

“this year’s election breaks the mold in a number of important ways, it raises the question of how closely it will hew to past elections, at least where market reaction is concerned.”

Just with the candidates alone we are dealing with two unknowns:

“If

[Clinton] pulls it off, she’ll become not only the first woman and first first lady to rise to the country’s highest office but also the first Democrat to succeed another two-term Democrat since Martin Van Buren succeeded Andrew Jackson in 1837.”

“…Meanwhile, if Donald Trump manages an upset, he will become the oldest person ever to take the oath of office and the first to transition directly from the business world to the presidency without any past experience as a high-ranking government official (like William Howard Taft and Herbert Hoover) or military officer (like Zachary Taylor, Ulysses S. Grant and Dwight D. Eisenhower). To Trump’s supporters and many others, of course, this is one of his main assets.”

Trump or Clinton winning the polls?

If Brexit has taught us anything it is that polls aren’t the be all and end all, and listening to them can lead to unexpected results. For Frank Holmes, polls ‘can often be misleading’ and he points to Brexit polls that suggested as much. He also refers to the ‘Bradley effect’:

“California polls gave L.A. mayor Tom Bradley a wide lead in the days leading up to the 1982 gubernatorial election, and yet he was roundly defeated. Known today as the “Bradley effect,” the accepted theory is that voters told pollsters they supported Bradley, an African-American, so as not to appear racist. But in the privacy of the voting booth, those same voters pulled the lever for his opponent.”

Holmes argues that we may now be seeing a ‘reverse Bradley effect’ where those polled do not want to admit their support for Donal Trump, “the least-liked person ever to run in U.S. history, followed closely by Hillary.”

However both Reuters and Bloomberg have disputed this in recent days. On Bloomberg this morning it was reported that as the majority of polls are online, those polled are unlikely to be embarrassed to admit their political leaning to a computer or their iPhone.

Polling is also proving an area of some debate when it comes to the swing voters, are there as many as are believed to be? Not in the medium to long-term, no. Support consistently remains the same. Reuters looked at a cross-section of polls and concluded that, “momentary swings disappear when we instead look at monthly averages. The larger slices of time show that the rapid swings in voters’ views always return to a rough equilibrium. In fact, there has not been any real change in Trump’s and Clinton’s relative position over the past three months.”

For those of us watching the polls and believing that this is all about swing voters, Ipsos has a word of warning for us, “Observers need to distinguish between whether voters are switching candidates or simply becoming more excited about their candidate of choice. For the candidates themselves, it means the sprint to the finish is about keeping their supporters fired up while demoralizing the other side’s base.”

Two ‘unknown’ candidates

Frank Holmes points to the rare situation we find ourselves, where neither candidate is seeking re-election, and how this creates uncertainty in the markets.

“…no incumbent’s name appears on the ballot. This is rarer than you might initially think. Since 1947, when the number of