Trading Through the Noise: Data Insights on the U.S. Election
In this highly-charged political environment, there is one outcome everyone in the financial markets can agree they’d like to see on November 3, 2020 – a clear result in the U.S. presidential election. What are the odds of that actually happening and what variables are currently at play in the polling data that could influence the markets after the election?
To help shed some light on those questions, Tradeweb hosted a virtual client event last week, featuring Nate Silver, founder and editor-in-chief of FiveThirtyEight and the author of The Signal and the Noise: Why So Many Predictions Fail — But Some Don’t. Silver was joined by CNBC’s Ron Insana in a wide-ranging discussion about the impending election and a deep dive on what the data can tell us about potential outcomes and impacts to financial markets.
The Specter of Uncertainty in Financial Markets
Insana jumped right in with the question on everyone’s mind. Reminding the audience of the uncomfortable uncertainty – and related market volatility – that surrounded the long period of indecision following the 2000 election, he asked: “If there’s one thing the market fears right now, it’s an even more disastrous replay of 2000; will we know who’s president on election night?”
Silver explained that the answer to that question really comes down to Florida and Pennsylvania, but it’s more complicated than just who wins those states; it’s also about how fast the ballots are counted.
“Some states count their ballots very quickly. Florida, for example, counts mail-ins in advance and usually has results very quickly. If Biden wins Florida by a clear, comfortable margin, our model shows that he has a 99% of winning the entire election,” Silver said. “Other states to watch include Arizona and North Carolina, who both traditionally count their ballots very quickly. Pennsylvania and Wisconsin, however, take a long time to count their votes. Pennsylvania doesn’t even start counting mail-ins until election day. If Biden has a clear victory in Florida, Arizona, North Carolina – we should have an answer on election night. If it’s close, it could be dragged out for a couple of weeks.”
Silver also pointed out that the mail-in and early voting trends will likely lean more Democratic because Democrats are highly encouraging voters to vote by mail. “So, it may be that the initial mail vote is very Democratic but what’s left over and comes in late is more purple,” Silver explained.
So how will this all affect financial markets? In the Q&A portion of the conversation, Tradeweb President Billy Hult raised a question about the power of narrative influencing investors in the event of a Biden victory.
“It’s an interesting scenario,” Insana ventured, “where we could see investors who are betting on increased stimulus move out of safety, stay-at-home related stocks and into recovery-oriented stocks. We could actually see a ‘stealth recovery’ where it looks like a bear market, but it’s actually just a rotation into different types of recovery-oriented stocks.”
Searching for the Signal in the Noise
If there’s anything to be learned from the history of electoral polling and analysis, it’s that the numbers can change significantly in the final days leading up to the election. Recalling examples ranging from Dewey versus Truman in 1948, Regan versus Carter in 1980 to – of course – Trump versus Clinton in 2016, Silver reminded the audience that polls can indeed move by 10 points or more during the final days of the campaign.
For his part, Silver gave Trump higher odds for victory in 2016 than any other pollster, but he still had Clinton winning. “This has been a relatively stable race so far, but there are still a lot of variables that could create uncertainty,” Silver reminded the audience. “Mail-in voting is being used more heavily this year than ever before, the news cycle is moving very quickly with new COVID-19-related news potentially changing the dialogue on any given day. Anything can change.”
Tradeweb’s Take: More Data Equals Better Decisions
Tradeweb CEO Lee Olesky remarked on what inspired the firm to host this virtual event: “We wanted to convene a conversation that focused on data-driven decisions while tuning out as much of the noise as possible. We thought that was especially important in 2020, a year like no other.”