After a long and gruelling campaign, the US Presidential election is now just weeks away. Until recently, the Republican candidate, Donald Trump, was thought to have had a commanding lead in the race. Polls showed the former President beating his then-rival, Joe Biden, in key swing states, with some suggesting he could score victories in Democrat strongholds like New Jersey and Virginia.

Over the summer Trump was riding high after what most observers thought was a strong performance in his televised debate with President Biden, and was then further boosted in the polls after a failed assassination attempt produced the now iconic scenes of Trump raising his fist amid the flying bullets.

But the polls would have it that the picture has changed dramatically since that time. President Biden, who was under increasing pressure over his cognitive abilities, has recused himself from the race. After being replaced by his Vice President, Kamala Harris, the former California Senator has steadily built up her lead over her Republican rival – and in something of a turnaround now looks like the favourite to become the next President of the United States.

Or at least, that’s what the polls would indicate. But polls aren’t crystal balls, they are just snapshots taken at a particular moment in time. For further insight, we can look at the movements of the financial markets. With billions of dollars riding on the outcome of the contest, investors will be betting accordingly, putting their money in stocks and shares they think are likely to benefit as a result of the incoming President’s policies. So, who do the markets think is set to win the US Presidential election?

Trump Trade drops off

The Trump Trade is a term to describe trading behaviours characterised by positive movement in the markets, fuelled by investors who believe Trump’s plans to slash regulation and taxes will boost private enterprise. As well as helping to create activity across the market, feverish speculation that Trump was bolted on to win over the summer helped to boost in particular, bitcoin, oil companies and chipmakers. The thinking was the Republican’s plans to impose harsh tariffs on foreign goods while reducing the tax burden for American companies, would help spur growth. And when Trump looked odds-on to win, investors backed the companies they felt would benefit from his presidency.

Perhaps the ultimate weather vane for the direction of Trump Trade is the price of the former president’s tech company, the Trump Media & Technology Group. The company owns Truth Social, a ‘Twitter clone’ which until recently was the only social media platform on which Trump was posting. The firm’s fundamentals would indicate the company, and indeed the platform, isn’t worth very much. However, its share price benefitted, because it was assumed, that in the event of a Trump win it would be the exclusive online pulpit for Presidential statements, helping to draw users and grow the platform’s value.

Singling in on the value of DJT, in May we can see the stock was trading at over $50 per share. As of October 1, the stock was trading at around $16. While the decline is in part indicative of a drop off in investor’s interest in the company as a ‘meme stock’ it would also indicate investors are now less confident of a Trump victory than they were five months ago.

Could Bitcoin predict the Presidential election?

For some time, the price of bitcoin was considered part of the so-called Trump trade. Former President Trump had shown enthusiasm over the cryptocurrency and made a concerted effort to reach out to the crypto community with a number of policy proposals, including the creation of a strategic bitcoin reserve.  The overtures came at a time when the Democrats were taking a frosty attitude to bitcoin, citing concerns over national security and its application in criminal enterprise.

However, after assuming the mantle of Democrat nominee, Vice President Kamala Harris has adjusted her party’s stance on the digital currency – and now analysts say it is poised to do well regardless of which of the two candidates enters the White House. As per DL News, Bernstein has previously forecast the price of bitcoin would rise to $90,000 in the event of a Trump win but would plunge to $30,000 under a Harris administration. In light of changes to the Democratic party platform, the research firm has since revised its forecast, saying: ”Momentum should continue regardless of election outcome.”

So, while bitcoin may have previously served as a weather-vane for the presidential election, its price now appears independent, or at least less closely tied, to the result of November’s election.

Is the stock market a good predictor of election outcomes?

Over the best part of a century, the S&P 500 has accurately predicted the results of US elections more than 80 per cent of the time. As per analysis from Money.com the incumbent President tends to win re-election when the stock market is positive in the three months leading to the election. Of the nine occasions when the 90 days before the election saw the stock market fall, the incumbent lost the election eight times. However, the 2024 race is slightly unusual in that while Harris isn’t the incumbent president, she is the incumbent Vice President, and it remains unclear whether voters consider her candidacy a clean break from Biden, or more of the same – and what impact that might have on voting behaviour.

However, what we do know is that investors are betting on an ‘extremely close’ election – defying the polling consensus which has Harris up three points on Trump nationally. Speaking to the FT, Citi’s Stuart Kaiser said:

“Our base case is still that this is basically a toss-up, and most clients have coalesced around the same view.

“If you talk to a client who thinks it’s 60-40 in favour of Trump, you could talk about owning bank stocks. If you think Kamala is more likely to win, trading a basket makes sense.”

A September report by Reuters also noted the drop-off in the Trump Trade, toward a more uncertain picture, with investors positioning themselves to benefit from volatility. The outlet reported:

“A June debate saw a disastrous performance by President Joe Biden boost bets on a Trump win, fuelling rallies in corners of the U.S. equity market that could benefit from Trump policies such as such as tax cuts and regulatory easing, including small caps and energy shares.

“Many of those “Trump trades” abated after Harris replaced Biden as the Democratic contender and the candidates’ standings in polls narrowed.”

The stock market has historically been a good predictor of US Presidential races. But right now, investors don’t seem to be betting on either horse – considering the race too close to call. However, if they’re right about just how narrow this race really is, that would appear to be in defiance of the pollsters, who have Kamala Harris looking like a clear favourite.

Is the Presidential race closer than we think?

While polling data currently indicates that Kamala Harris holds a lead over Donald Trump in the US Presidential race, the financial markets are painting a more complex picture. Historically, markets have been a reliable predictor of election outcomes, but this year investors seem less confident in forecasting a clear victor. The decline in the so-called “Trump Trade,” reflected by falling stock prices in Trump-linked companies and sectors previously buoyed by his policy promises, suggests reduced optimism for a Trump victory compared to earlier in the year.

Meanwhile, Bitcoin, once seen as a bellwether for Trump’s chances, now appears to be relatively neutral, with analysts predicting growth regardless of the election’s outcome. This shift illustrates how markets are adapting to the uncertainty surrounding the election, as Harris has reshaped some Democratic policies and appears to be creating clear water between herself and Biden.

Ultimately, the markets reflect a sense of volatility and caution, with many investors hedging their bets in anticipation of a tightly contested race. Despite Harris’s advantage in the polls, market sentiment suggests the race is far closer, with significant uncertainty about the outcome. This divergence between market behaviour and polling highlights the unpredictability of the 2024 election, leaving investors to brace for potential surprises in November.