Spare a thought for pollsters and pundits in the United States. Less than a fortnight before the country holds the most consequential
presidential election in recent memory, the race between US Vice-President Kamala Harris and former president Donald Trump is too close to call. The only certainty is that the country will be just as polarised and fractured after the election as before.
A month ago, Harris had a two-point lead over Trump in RealClearPolitics’ average of national opinion polls. The two candidates were also neck and neck in the crucial swing states. However, in prediction markets, where punters bet on the outcomes of particular events, Harris was the favourite to win the election, with spread betting site PredictIt putting the odds of a Harris victory at 57 per cent.
Fast forward to today and the two candidates are in a virtual tie in the swing states. In betting markets, by contrast, the chances of a Trump victory have risen sharply. RealClearPolitics’ average of the odds on betting sites show that Trump’s chances have increased from 46 per cent a month ago to 63 per cent.
Yet while betting markets have shifted strongly towards forecasting a victory for Trump, the reality is that the election is a coin toss. Signals from prediction markets that Trump will return to the White House
should be treated sceptically, not least because opinion polls continue to point to a dead heat.
More tellingly, financial markets are unconcerned. The benchmark S&P 500 equity index has set a record high 47 times this year. This is not because Wall Street expects a victory for Trump, whose tax-cutting and deregulatory agenda appeals to many businesses and investors. It is because markets, which
are notoriously bad at assessing and pricing political risk, are even more uncertain about the outcome and have refrained from placing big bets on the election.
BlackRock CEO Larry Fink said earlier this week that the election “really doesn’t matter” as far as markets are concerned. While this is too simplistic, it makes little sense to speculate over who will win an election that is a toss-up. Although investors are often criticised for ignoring or downplaying political risk, insouciance might actually be the right approach this time.
