Six Things to Remember on Election Day

WASHINGTON DC WISDOM ELECTION EDITION

NOVEMBER 03, 2020

We made it to Election Day 2020! Today we run through six themes for investors to keep in mind.

1. Markets Generally Go Up

The market dislikes uncertainty and we may get a lot of uncertainty this week, and several weeks thereafter. We have included one of our favorite charts as a reminder to think bigger picture and long-term. There are many factors that impact markets beyond politics (i.e. monetary policy, economic cycle, valuations, etc.). Moreover, the make-up of congress matters and ultimately, we will not know what parts of the respective Democratic or Republican agenda may be prioritized or passed in the coming years. We generally view any dislocation in the market as more of a buying opportunity.

2. Election Baskets Pointing to Biden

Our Democratic and Republican baskets are two data points we have monitored all summer and fall. We believe the market is pricing in a Biden win, backed by the strong performance of renewable energy/China-based stocks, and the sluggish performance of traditional energy, defense and financials in the Republican basket. A Trump victory would potentially unwind some of the winning Democratic trade and provide a pop to select lagging Republican industries.

3. Election Scenarios to Remember

There are a range of potential outcomes between who owns the White House to Congress. We expect the House of Representatives will remain with the Democratic party. Below are specific industries we believe may benefit or be hurt by a specific outcome over the medium-term.

First Scenario: Status Quo (Trump wins Presidency/Congress remains divided)

Second Senario: Democratic Sweep (“Blue Wave”)

Third Scenario: Joe Biden Wins, Congress Divided

4. The Results… May Take Time

With more Americans voting by mail and a surge in voter participation, a close election will take longer to count. Per the Wall Street Journal, through November 1st, 91.7 million ballots have been casted, compared to 58.8 million through the same time in 2016 (56% increase).
All states follow different processes for when ballots are counted and when ballots need to be postmarked/received. For a quick guide on key swing states, refer to the table below. One notable item – Pennsylvania’s due date for mail-in ballots extends three days after Election Day. Pennsylvania was a remarkably close race in 2016 (Trump won by 44,292 votes, a 1.5% margin over Hilary Clinton) and is one of the reasons why a close result may not be determined for days or weeks. Voting-rights groups are anticipating waves of litigation in highly contested states.

5. Florida

The Sunshine State is the holder of 29 electoral college votes and is a large swing state in the election. Did you know, 1992 was the last time a President won the election without winning Florida. Betting odds are pricing in a victory (60%) for President Trump in Florida.

If we see a Biden win in Florida, the paths for President Trump’s re-election become incredibly narrow. Many swing states (e.g. AZ, MI, NC, OH, PA) would turn into must wins for the President. If Trump can hold Florida, the odds of knowing the result on election night decrease significantly in our view.

6. Two Models… Two Different Outcomes

TrendMacro’s Donald Luskin highlighted their election prediction model at the end of October, which was pointing to a victory for Donald Trump and he expects a highly contested outcome. Luskin noted their live model correctly predicted Obama in 2012 and Trump in 2016; moreover, their model inputs backtested to 1952 have correctly predicted each election. On the contrary, Nate Silver’s FiveThirtyEight have increased Joe Biden’s odds to 90% in their election forecast. In comparison to 2016, FiveThirtyEight gave Hilary Clinton a 71% chance of winning.

Election Day is here, and something’s got to give.

1. Source: Capital Group, “Election watch: What the U.S. race means for investors”, July 29, 2020. Additional sources in the Chart.
2. Source (Chart Democratic Basket vs. Republican Basket): Bloomberg, Hightower.
3. Source: PredictIt. Note: Odds priced at 87% through November 1, 2020 and has remained above 80% since June.
4. Source: The Wall Street Journal, “When Will We Know the 2020 Presidential Election Results? A Guide to Possible Delays”, October 29, 2020.
5. Source: Strategas Research.
6. Source: electionreturns.pa.gov
7. Source: The Wall Street Journal, “Lawyers Prepare for Court Battles in Pennsylvania, Michigan and Wisconsin”, October 31, 2020.
8. Source: 270towin.com
9. Source: Bloomberg, PredictIt.
10.Source: TrendMacro, “An October surprise in our presidential election prediction model”, October 29, 2020.
11.Source: FiveThirtyEight.com

Disclosures
Investment Solutions at Hightower Advisors is a team of investment professionals registered with Hightower Securities, LLC, member FINRA/SIPC, & Hightower Advisors, LLC a registered investment advisor with the SEC. All securities are offered through Hightower Securities, LLC and advisory services are offered through Hightower Advisors, LLC. This is not an offer to buy or sell securities. No investment process is free of risk and there is no guarantee that the investment process described herein will be profitable. Investors may lose all of their investments. Past performance is not indicative of current or future performance and is not a guarantee. In preparing these materials, we have relied upon and assumed without independent verification, the accuracy and completeness of all information available from public and internal sources; as such, neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Hightower shall not in any way be liable for claims and make no expressed or implied representations or warranties as to their accuracy or completeness or for statements or errors contained in or omissions from them. This document was created for informational purposes only; the opinions expressed are solely those of the author, and do not represent those of Hightower Advisors, LLC or any of its affiliates.