Mon, November 4, 2024 | 6:00AM ET

Over weekend, Prez. polls and betting markets tightened, making this election even more of a "coin toss." Equity markets likely bottom on "peak uncertainty" which could be earlier than many realize.

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Tom Lee, CFA ^AC

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Over weekend, Prez. polls and betting markets tightened, making this election even more of a coin toss. Equity markets likely bottom on peak uncertainty which could be earlier than many realize.

VIDEO: Over the weekend, the polls and betting markets show a considerable tightening of the Presidential race. This shows the race is even more of a toss up than it was a week ago. But with many investors aware of this, we need to be aware that markets might bottom well before “peak uncertainty”

Please click below to view our Macro Minute (duration: 5:26).

With less than 2 days until election day, we believe this is front of mind for investors, even more than the upcoming Nov Fed FOMC rate decision on 11/7 (Thu). For those watching the polls and betting markets, the Presidential race tightened quite a bit over the weekend, making this election even more of a “coin toss.”

Betting markets from Polymarket to Kalshi tightened sharply over the weekend.
– Polymarket shows Trump vs Harris 54% vs 46%
– Kalshi 51% vs 49%
– this is tightened, as Polymarket was 67% Trump last week
Polls show a similar tightening and a lot was made of the Iowa poll showing Harris ahead 47% vs 44%. The cumulative effect of the polls has narrowed the Natesilver.net model to show Trump down to 51.5% favored, down materially in the past week.
For whatever unknown reasons, this Presidential race has become even more of a coin toss, with the odds in both betting markets and polls at 50/50. This is counter to 2016 and 2020, which polls and betting markets showed the Presidential race gaps widening in the final days.
I was curious how polling adjustments might be creating distortions, since in 2016 and 2020, polls showed a general bias towards the Democratic candidate. The article from the Pew Research center “Key things to know about U.S. election polling in 2024” dated August 2024 is pretty useful (link –> here). Among the takeaways:
– polling actually improved and in 2022 midterms, were the most accurate since 1998
– but polls with Donald Trump continue to be less accurate
These are somewhat contradictory conclusions. The first says polls in 2022 midterms were accurate and showed no bias. But this 2022 case seems less applicable for Presidential elections. Pew offered a few reasons why:
– first, there is difficulty estimating voter turnout
– the study shows Trump draws voters who do not participate in midterms
– so 2022 might not be accurate
– second, Republicans are less likely to participate in polls
– thus, the margin of error could be larger in 2024
To us, this just means that if polls are this tight and betting markets this narrow a spread, this means the election is this close to a “toss up”
We caution our clients from getting “stock market derangement syndrome” — if we are saying this race is tight, this is not an endorsement of any particular candidate. This is an observation of the state of the uncertainty facing markets. And markets do not like uncertainty.
This morning, however, I started to think about whether equity markets could surprise investors. That is, our base case is the election will not be decided for at least a week, and perhaps not even for a month:
– intuitively, one would expect markets to bottom AFTER the election results finalized
– but the uncertainty of election is well known
– but there is a possibility the election is decisive
– but investors de-risked at highest pace since 2015 based on BofA institutional client flows
– but stocks already trending down since mid-October
So, we are aware of the growing possibility that the weakness of stocks due to election uncertainty could be shorter than many expect. This is something we are watching.
There is also a lot of macro data this week:
– 11/4 Mon 10:00 AM ET: Sep F Durable Goods Orders    -0.8%e
– 11/5 Tue 8:30 AM ET: Sep Trade Balance    -$84be
– 11/5 Tue: US Presidential Election
– 11/5 Tue 10:00 AM ET: Oct ISM Services PMI    53.8e
– 11/6 Wed 9:45 AM ET: Oct F S&P Global Services PMI    55.3e
– 11/7 Thu 8:30 AM ET: 3Q P Nonfarm Productivity    2.5%e
– 11/7 Thu 8:30 AM ET: 3Q P Unit Labor Costs    1.2%e
– 11/7 Thu 9:00 AM ET: Oct F Manheim Used Vehicle Index
– 11/7 Thu 2:00 PM ET: Nov FOMC Decision    -25bpe
– 11/8 Fri 10:00 AM ET: Nov P U. Mich. 1yr Inf Exp    2.7%e
Of these, the most important is the Nov FOMC rate decision. The Street is looking for a 25bp cut in Nov and another 25bp cut in Dec, taking this to 4 cuts for 2024. This seems reasonable to us, and at a minimum, the Fed rate decision is a reminder that the Fed is dovish. And a dovish Fed doesn’t want financial conditions to tighten
– tightening financial condition are
– rising 10-year and general interest rates
– falling stock prices
So, the Fed decision could potentially lead to short-term strength in stocks if there is weakness post-election day.
Since the Fed pivot on Nov 2023-ish, equities have generally traded better post-FOMC day:
– median 5 day gain +1.1%
– win-ratio 75%
But one might wonder if the Fed may matter less given the election results. Yes.

Bottom line: Coin toss means stay humble

Bottom line. We are in the midst of uncertainty. And please avoid stock market derangement syndrome. Past the next few weeks, we remain constructive into YE and expect the S&P 500 to get close to 6,000. The rationale is basically as follows:

3Q EPS resilient despite falling inflation

Fed dovish and Fed cuts boost economy

Election uncertainty = cash sidelined

Valuations still reasonable

42 SMID Granny Shot Ideas: We performed our quarterly rebalance on 7/16. Full stock list here -> Click here

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Key incoming data November:

~~11/1 8:30 AM ET: Oct Non-Farm Payrolls~~ Tame
~~11/1 9:45 AM ET: Oct F S&P Global Manufacturing PMI~~ Tame
~~11/1 10:00 AM ET: Oct ISM Manufacturing PMI~~ Tame
11/4 10:00 AM ET: Sep F Durable Goods Orders
11/5: US Presidential Election 2024
11/5 8:30 AM ET: Sep Trade Balance
11/5 10:00 AM ET: Oct ISM Services PMI
11/6 9:45 AM ET: Oct F S&P Global Services PMI
11/7 8:30 AM ET: 3Q P Non-Farm Productivity
11/7 8:30 AM ET: 3Q P Unit Labor Costs
11/7 9:00 AM ET: Sep F Manheim Used vehicle index
11/7 2:00 PM ET: Nov FOMC Decision
11/8 10:00 AM ET: Nov P U. Mich. Sentiment and Inflation Expectation
11/12 6:00 AM ET: Oct Small Business Optimism Survey
11/12 11:00 AM ET: Oct NY Fed 1yr Inf Exp
11/13 8:30 AM ET: Oct CPI
11/14 8:30 AM ET: Oct PPI
11/15 8:30 AM ET: Oct Retail Sales Data
11/15 8:30 AM ET: Nov Empire Manufacturing Survey
11/18 10:00 AM ET: Nov NAHB Housing Market Index
11/18 4:00 PM ET: Sep Net TIC Flows
11/19 9:00 AM ET: Oct M Manheim Used vehicle index
11/21 8:30 AM ET: Nov Philly Fed Business Outlook
11/21 10:00 AM ET: Oct Existing Home Sales
11/22 9:45 AM ET: Nov P S&P Global Manufacturing PMI
11/22 9:45 AM ET: Nov P S&P Global Services PMI
11/22 10:00 AM ET: Nov F U. Mich. Sentiment and Inflation Expectation
11/25 8:30 AM ET: Oct Chicago Fed Nat Activity Index
11/25 10:30 AM ET: Nov Dallas Fed Manuf. Activity Survey
11/26 9:00 AM ET: Sep S&P CoreLogic CS home price
11/26 10:00 AM ET: Nov Conference Board Consumer Confidence
11/26 10:00 AM ET: Oct New Home Sales
11/26 2:00 PM ET: Nov FOMC Meeting Minutes
11/27 8:30 AM ET: Oct PCE Deflator
11/27 8:30 AM ET: 3Q S 2024 GDP
11/27 10:00 AM ET: Oct P Durable Goods Orders

Key incoming data October:

~~10/1 9:45 AM ET: Sep F S&P Global Manufacturing PMI~~ Tame
~~10/1 10:00 AM ET: Sep ISM Manufacturing PMI~~ Tame
~~10/1 10:00 AM ET: Aug JOLTS Job Openings~~ Tame
~~10/3 9:45 AM ET: Sep F S&P Global Services PMI~~ Tame
~~10/3 10:00 AM ET: Sep ISM Services PMI~~ Mixed
~~10/3 10:00 AM ET: Aug F Durable Goods Orders~~ Tame
~~10/4 8:30 AM ET: Sep Non-Farm Payrolls~~ Hot
~~10/7 9:00 AM ET: Aug F Manheim Used Vehicle Index~~ Tame
~~10/8 6:00 AM ET: Sep Small Business Optimism Survey~~ Tame
~~10/8 8:30 AM ET: Aug Trade Balance~~ Tame
~~10/9 2:00 PM ET: Sep 18 FOMC Meeting Minutes~~ Dovish
~~10/10 8:30 AM ET: Sep CPI~~ Hot
~~10/11 8:30 AM ET: Sep PPI~~ Tame
~~10/11 10:00 AM ET: Oct P U. Mich. Sentiment and Inflation Expectation~~ Tame
~~10/15 8:30 AM ET: Oct Empire Manufacturing Survey~~ Tame
~~10/15 11:00 AM ET: Sep NY Fed 1yr Inf Exp~~ Tame
~~10/17 8:30 AM ET: Sep Retail Sales Data~~ Tame
~~10/17 8:30 AM ET: Oct Philly Fed Business Outlook~~ Tame
~~10/17 9:00 AM ET: Sep M Manheim Used Vehicle Index~~ Tame
~~10/17 10:00 AM ET: Oct NAHB Housing Market Index~~ Tame
~~10/17 4:00 PM ET: Aug Net TIC Flows~~ Tame
~~10/23 10:00 AM ET: Sep Existing Home Sales~~ Tame
~~10/23 2:00 PM ET: Oct Fed Releases Beige Book~~ Dovish
~~10/24 8:30 AM ET: Sep Chicago Fed Nat Activity Index~~ Tame
~~10/24 9:45 AM ET: Oct P S&P Global Manufacturing PMI~~ Tame
~~10/24 9:45 AM ET: Oct P S&P Global Services PMI~~ Tame
~~10/24 10:00 AM ET: Sep New Home Sales~~ Tame
~~10/25 10:00 AM ET: Oct F U. Mich. Sentiment and Inflation Expectation~~ Tame
~~10/25 10:00 AM ET: Aug F Durable Goods Orders~~ Tame
~~10/28 10:30 AM ET: Oct Dallas Fed Manuf. Activity Survey~~ Tame
~~10/29 9:00 AM ET: Aug S&P CoreLogic CS home price~~ Tame
~~10/29 10:00 AM ET: Oct Conference Board Consumer Confidence~~ Tame
~~10/29 10:00 AM ET: Sep JOLTS Job Openings~~ Tame
~~10/30 8:30 AM ET: 3Q A 2024 GDP~~ Tame
~~10/30 10:00 AM ET: 3Q24 Treasury Quarterly Refunding Press Conference~~ Tame
~~10/31 8:30 AM ET: Sep PCE Deflator~~ Tame
~~10/31 8:30 AM ET: 3Q Employment Cost Index~~ Tame

Economic Data Performance Tracker 2024:

Economic Data Performance Tracker 2023:

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