Uphill Odds for Trump
An analysis of the political fundamentals indicates an uphill road to reelection for Trump.
Many voters are not impressed with Trump personally. He has significant net unfavorable ratings in leadership attributes, such as temperament, trustworthiness and management skills by margins of -41%, -25% and -18%, respectively, according to a CNN poll (Mar.14-17, 2019). Overall, his unfavorable ratings outnumber his favorable ratings by a 2.1 margin.
However, Trump Has a Path
Despite Trump’s poor standing on key fundamentals, he has a path to reelection. Historically, a negative net approval rating has not necessarily been a deterrent to reelection. President Ronald Reagan was reelected with a net approval rating of -9%, not far from Trump’s current level of -11%. Conversely, a positive net approval rating has not necessarily translated to victory. President George H. Bush had a strongly positive net approval rating of +70%, but lost the election decisively to Bill Clinton. Trump’s trailing position at this early stage does not mean a loss on election day. Clinton won reelection despite trailing an unnamed GOP candidate at this point in the election cycle.
In a Quinnipiac Poll (Mar.21-25, 2019), Trump enjoyed a net favorable rating for personal fundamentals. He scored +46% and +5%, respectively for the statements, “stands up for beliefs” and “tough to handle a crisis”.
Trump’s Advantage: The Economy
In economic fundamentals, Trump has been polling ahead of Democrats in Congress on the most critical issues likely to influence the outcome of the election, including his handling of the economy, jobs and national security.
Key Determinants for the 2020 Presidential Elections
Financial Market Implications
Financial markets are already reacting to the start of the 2020 Presidential election campaigns. The market perception of an early edge by the Democrats is leading to the pricing in of some key populist Democratic policies, most notably the Medicare-for-All proposal. This has led to a severe underperformance of the Healthcare sector, which had a year-to-date total return of -0.14% as of April 22, well below the 16.7% gain of the S&P 500 Index. Industrials have outperformed the S&P 500 year-to-date, while the Materials sector has lagged. The potential exists for materials to rally on expectations of an infrastructure program.
At this time, I believe the GOP’s probability of holding on to the Presidency is 50/50 – better odds than current polls and market expectations. There remains a constant tug and pull dynamic in this race that will ultimately determine the outcome and why Trump’s chances remain even. The positive ratings on the economy remain the consistent pull, while voters disappointed in his personal flaws represent the tug. At this juncture, it is too early to know how close we are to the line. Our base case scenario envisions Trump running against an establishment Democrat. Under this scenario, the economy should continue to grow at or above trend. However, there could be a divergence in financial market performance, with equities and the USD performing better under a reelected Trump, while interest rates underperform.