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The US Presidential Horse Race: Clinton’s to Lose?
Part one of two . Paresh Upadhyaya is Director of Currency Strategy, U.S. at Pioneer Investments .
At this point in the election cycle, the US presidential race is Hillary Clinton’s to lose, with a series of fundamental, quantitative and subjective indicators pointing to a likely win.
Fundamental
Historically, the approval rating of the outgoing President has correlated strongly with the ultimate success of that corresponding party’s presidential candidate. Our analysis indicates that this correlation has failed only twice since 1960 (Table 1). Currently, President Barack Obama’s approval rating is at 53%, the highest level in his second term. At this level, Obama’s approval rating should favor Clinton’s election.
Quantitative
Historically, the polls haven’t had any meaningful predictive qualities until Labor Day weekend. Polls taken on Labor Day weekend have accurately predicted the winner of the popular vote in every election since 1996 and the ultimate winner in all but one (2000), when Al Gore lost a close race to George Bush (Table 2). So far, Clinton has a 3.9% lead over Trump, the largest for a non-incumbent and non-vice presidential candidate since Dwight Eisenhower’s 1952 inaugural campaign.
Subjective
All year long, market betting sites have been forecasting a Clinton win. By and large they have not forecasted this probability as lower than 60% since the beginning of the year. Currently, PredictWise is anticipating a 75% probability of a Clinton Presidency with only a 25% probability of a Trump win. There are a number of sophisticated political websites, such as FiveThirtyEight, that produce their own political probability models, taking into account polls and economic conditions. FiveThirtyEight is predicting a Clinton victory with a 68% probability against 32% for Trump.
While a Trump win is still possible, both candidates face a number of challenges that could derail their campaigns.
Hillary Clinton’s Challenges
There are three areas that are likely to act as road bumps along the way for Clinton. How she navigates these potential obstacles will determine whether the campaign veers off course or stays on track in the polls.
- Complacency – With our poll of polls indicating a comfortable Clinton lead of 3.9%, the campaign needs to remain vigilant and stay on the offensive. She will also need to focus on grass roots organization and get out the vote efforts.
- Email Scandal – If Clinton is not careful, the email scandal can become a slow-drip scandal that could further erode trust and honesty among voters, potentially crystalizing enough discord to lead to defeat in November.
- October Surprise – Given that Clinton is the ruling party’s candidate, she could be blamed for any potential downturn in the economy or any negative repercussions from Obama’s domestic or foreign policy initiatives.
Donald Trump’s Challenges
Can Trump win? Yes, but it won’t be easy. With fundamental, quantitative and subjective indicators all suggesting a loss, there are three things he needs to do to vastly improve his chances of winning the presidency.
- Stay on Message – Trump needs to continue to use a teleprompter that will ensure he stays on message and minimize the likelihood of going off topic, which has gotten him into trouble on numerous occasions.
- Demonstrate Grasp of Policy – Polls indicate Americans overwhelmingly do not believe Trump has the experience to be president. The most recent Gallup poll reveals that Americans believe Clinton has the experience to be President by a massive 62% to 31% margin over Trump (5/18-22 poll). Trump needs to demonstrate that he’s serious and thoughtful about a range of domestic, economic and foreign policy issues. Obviously, the poll highlights low expectations on this subject matter, therefore it won’t take a lot to beat them. The upcoming debates will be the perfect venue to turn around perceptions.
- Emphasize Strengths – He should play to his strengths versus Clinton. There are two areas where Trump beats Clinton: the economy, and as an agent of change. The latest NBC News/Wall Street Journal poll (8/3/16) highlights that Americans slightly favor Trump over Clinton on dealing with the economy by 46% versus 42%. The poll also reveals that Americans strongly believe Trump, compared to Clinton, will change business as usual in Washington D.C. by a thumping 48% against 26% margin.