Financial Markets, Electoral College Point to Clinton Win

Part two of two . Paresh Upadhyaya is Director of Currency Strategy, U.S. at Pioneer Investments .

As former Vice President Al Gore found out in 2000, it is the Electoral College that elects a president and not the popular vote. While Clinton leads in opinion polls, our analysis of the Electoral College Map indicates a decisive Clinton win.

I project Clinton winning 359 electoral votes, comfortably ahead of the 270 required to win the presidency, while Trump wins 179 electoral votes — below Mitt Romney’s 2012 result of 206. To get a better sense of regional support for the two candidates, into an ABC/ Washington Post poll reveals that Clinton is outperforming Obama’s 2012 reelection campaign in three out of the four US regions – Northeast, South and West.

Changing demographics, Trump’s immigration policy and his cornerstone plan to build a wall between Mexico and the US has antagonized Latino Americans. As a result, the West has seen a swing of 16% in favor of Clinton compared to the same period in the 2012 election, and has pushed Colorado and New Mexico into the safe Clinton camp while Arizona has become a lean Clinton state. Surprisingly, the GOP stronghold of the South has seen a 12% swing in favor of Clinton compared to the 2012 election campaign due to changing demographics (rising Latino population and inward migration of African Americans) and the perceptible change in college-educated white voter’s preferences. The only region where there is a swing of 4% in favor of Trump over Romney’s performance in 2012 is the Midwest. Trump’s immigration and trade policies are resonating with white blue-collar voters.

Our Electoral College Map below shows how the landscape has changed over the years. Clinton has solidified the traditional democratic base of the Northeast and West Coast where all those states are out of reach for Trump. On the other hand, the Midwest is far more competitive with many traditionally Democratic states, such as Michigan and Ohio, barely tilting to Clinton. The Southwest is slowly becoming more hospitable to Democrats as New Mexico, Colorado and Nevada are becoming more Democratic. Arizona has become a hotly contested battleground state. The South is also changing, as the map is no longer a solid deep red as it has been for the last 20 years. North Carolina and Florida are tilting Democratic while Georgia, South Carolina and even Mississippi are leaning Republican.

Financial Market Implications

The markets are essentially pricing in a Clinton win; therefore risks remain skewed to the downside if there is an uptick in Trump poll numbers and a change in the expectation of a Clinton win.

Equity Markets – Pricing in a Clinton Win   – The S&P 500 Index is pricing in a Clinton victory, according to Strategies Research Partners. They have developed Democratic and Republican portfolios to identify companies and/or sectors that stand to gain or lose the most from the election. Their analysis reveals that the Democratic portfolio has nearly doubled the Republican portfolio’s performance year to date, which is consistent with our fundamental, quantitative and subjective indicators pointing to a Clinton win. There were a few interesting findings. It appears the market is perfectly pricing in a boost to infrastructure spending, some form of corporate tax reform and more Democratic health care reforms. On the other hand, the market is not pricing in potential changes in energy and climate policy. These stocks have outperformed and could be vulnerable to a sharp correction. The pharmaceutical and biotech industries have underperformed due to concerns that a Clinton administration would take action to limit drug prices.

Given Trump’s low probability to win the election, the Republican portfolio has underperformed. Unsurprisingly, certain sectors such as defense, consumer discretion, consumer staples and utilities, in the Republican portfolio have also performed subpar. Given low expectations of a Trump win, it could create upside opportunities for the Republican portfolio.