The 2020 Presidential Election has the potential to move the market significantly, especially when the S&P 500 is 14% historically overvalued.
However, elections are complex beasts and keeping up with all the latest polls is a hassle. Fortunately, I’ve just found a new tool from a trusted source that can allow investors to track the state of the race with ease, accuracy, and thus estimate regulatory risks to the market in 2021 and beyond in real-time.
How I’ve Been Tracking the Democratic Primary So Far
Up until now, I’ve maintained a spreadsheet of individual primary polls for each of the leading candidates, as well as how many each is likely to get per the DNC’s 15% cutoff rule.
That rule states that anyone getting under 15% gets no delegates. Just like the 2020 Presidential race will be decided by electoral votes and not the popular national vote, so too are national polls for the Democratic primary mostly meaningless.
At best they can tell us who is likely to win most of the delegates in each state, since the 35 individual state polls we’ve had so far appear to be roughly representative of the nation as a whole.
Democratic State Primary Polls
(Source: Real Clear Politics)
Delegates by State
|% of Delegates In These States||54%||25%||16%||3%||1%|
|% Of Delegates Needed To Win Nomination||90%||41%||26%||5%||1%|
(Source: Real Clear Politics)
The biggest weakness of this model is that it has to include just the latest poll from each state, and some of those are months old.
Also, states apportion delegates both by popular state vote AND by congressional district, for which individual polls are not available.
But now there is a far better solution, from the statistical experts at fivethirtyeight.com.
The Hands-Down Best Way to Track the Democratic Primary
fivethirtyeight.com is the most accurate election forecasting site in the world, having predicted most Presidential, Senatorial, Gubernatorial, and House races with impressive accuracy since 2008.
They now have a new Democratic Primary tool that factors in
- all 57 primary/caucus races
- the probability of each candidate dropping out
- the momentum effects of how early races might affect later ones
- numerous other factors that only the most advanced statisticians can appreciate
- all reliable polls from each state in real-time
For example, let’s take a look at how California, a Super Tuesday (March 3rd) race, and the biggest single source of delegates look.
Currently, Biden and Sanders are statistically tied in CA, with Sanders having a 34% chance of getting the most votes, with Biden right behind at 33%.
Applying this same methodology to all 57 races (including PR, DC, Guam, Democrats Abroad, etc) 538 is able to put together the most robust primary tracking model I’ve ever seen.
It also allows regular people to track the state of the Democratic Primary race in real-time but factoring in the inherently probabilistic nature of politics. For example, the average delegate count is skewed lower for all candidates because the model factors in the probability of each person dropping out before any voting actually starts.
This is why zero delegates is the highest figure in each of those histograms, and as voting begins, it will drop to zero and be distributed based on how the early states go and how later state polls come out.
The model also keeps track of each candidate’s odds of achieving the 1,990 delegates needed to win the nomination outright and avoid a brokered convention. If no one wins a majority of pledged delegates, Super Delegates (party insiders like Pelosi and Obama) who account for 16% of delegates, get to vote on the 2nd and subsequent ballots.
Right now there is about a 15% probability of a brokered convention and you can see how the odds for each candidate winning outright change over time.
This Model Is Useful No Matter Your Political Affiliation
Why should all political junkies care about the Democratic primary? Because whether you are an independent like me or a Republican hoping Trump gets re-elected who wins that race will have huge implications for the November 2020 general election.
The electoral college is 538 votes and 270 are needed to win. Nothing else matters, including the popular vote. In all but NE, and ME, it’s winner take all in every state.
Right now the consensus forecast (from Sabato’s Crystal Ball, Politico, The Cook Political Report, and Inside Elections) is that 86 swing-state electoral votes will decide the 2020 race of the White House.
Those are the swing states that are likely to matter. There are a total of 13 combinations for how they can go, with 54% of those combinations favoring the Democrats.
A tie means the 2020 House will decide the Presidential election (Senate votes for VP) with 1 vote per state. Currently, 26/50 state delegates are controlled by the GOP and the consensus House forecast says this won’t change.
In effect, the breakdown of the Swing States means that the 2020 race is 54/46 Democratic/Trump.
But who the Democratic challenger is will likely matter a great deal.
Each state poll has a 5% margin of error, and so in Florida, the most important swing state by far (whoever wins it is guaranteed victory) it’s a statistical tie between Trump and every leading Democratic challenger.
In PA only Biden leads Trump outside the 5% margin of error, the rest are statistically tied.
Wisconsin, which Trump won by a few thousand votes in 2016, is also a statistical tie, though Biden has a slight advantage in terms of the average of head-to-head votes.
In Arizona, a historically red state that might flip this time, it’s a statistical tie except if Sanders is the Democratic nominee, in which case Trump is favored to win that swing state.
North Carolina is also a statistical tie, though with Biden also doing the strongest in head-to-head polls.
If Biden is the nominee, then using the best available data we have so far (those polls can and will likely shift somewhat later) it appears Biden is on track for 268 electoral votes, two short of victory. But that also means that Trump would need to sweep all the other swing states to win.
If Sanders is the nominee, then the best available data we have suggests Trump wins Arizona and thus triples his possible pathways to victory in November.
Don’t Forget About Congress: This Is What Will Matter To Stocks Far More
The president will have the power to change the regulatory climate and affect trade policy. Other than that Congress will decide what major initiatives actually get passed.
Taxes and all the sweeping reforms the Democrats are currently proposing will come down to what majorities in the Senate and House either party is able to obtain.
Currently, the Republicans have a three-seat majority in the Senate and Democrats hold a 14 seat majority in the House.
This is what the 2020 Congressional consensus looks like today.
It currently appears that Republicans will lose 3 Senate seats and Democrats 10 in the House. Thus even with a VP tiebreaker, the Democrats would have the slimmest of majorities in Congress and no major reforms would be likely. Morningstar’s estimate of sweeping regulatory reform (like Medicare-For-All) is “5% or less over the next 10 years.”
If Trump wins then the Senate remains in GOP hands and we continue to have divided government.
Basically, the power of the 538.com Primary tool is that it allows political fans to track the probability of which candidate takes on Trump, and thus which party is most likely to control Congress.
In the above article, I highlight the specific important economic/market ramifications of each party winning in 2020, but in either case, no game-changing/economy shaking reforms are likely to happen.
This means that any major market moves in 2020 running up to the election would likely represent attractive opportunistic buying opportunities for long-term investors.
SPY shares were trading at $328.28 per share on Wednesday morning, up $0.83 (+0.25%). Year-to-date, SPY has gained 1.99%, versus a 1.99% rise in the benchmark S&P 500 index during the same period.
About the Author: Adam Galas
Adam has spent years as a writer for The Motley Fool, Simply Safe Dividends, Seeking Alpha, and Dividend Sensei. His goal is to help people learn how to harness the power of dividend growth investing. Learn more about Adam’s background, along with links to his most recent articles. More...
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