Investors should consider rising odds of Trump win: JPMorgan

Biden's lead in the betting markets was down to 1.9 points

President Trump’s chances of securing a second term are surging in the betting markets and investors are unprepared, according to JPMorgan Chase & Co.

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An average of betting odds compiled by RealClear Politics showed former Vice President Joe Biden’s lead shrank to 1.9 points on Sunday, down from a high of 24.6 points on Aug. 1.

“Certainly a lot can happen in the next ~60 days to change the odds, but we currently believe that momentum in favor of Trump will continue, while most investors are still positioned for a Biden win,” wrote Marko Kolanovic, quantitative strategist at JPMorgan.

He points to two factors – the violent protests that have sprung up in cities across America and a bias in the polls – as reasons why Biden’s lead has narrowed.

Kolanovic’s team looked at the academic work of Omar Wasow, who found that whether protests were deemed peaceful or violent had a major impact on the outcome of U.S. election results between 1960 and 1972. He said public opinion was swayed by how the media covered and framed the demonstrations.

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Protests that were viewed as peaceful helped boost Democratic candidates by 2-3 percentage points while those believed to be violent helped Republicans by 2-8 percentage points, meaning there will be a 5-10 point shift in the polls if the perception of the protests flips from peaceful to violent.

Former President Richard Nixon, who ran on a campaign of law and order, won the 1968 election as a result of the violence, Wasow’s simulation found. Similarly, Trump has made law and order a cornerstone of his campaign.

Instead of having to rely on the media’s coverage of the protests, voters nowadays can go on social media and decide for themselves if the demonstrations are peaceful or violent.

“Weakness will never beat anarchists, looters or thugs, and Joe has been politically weak all of his life. LAW & ORDER!” Trump tweeted on June 2. He has tweeted about the matter at least 37 times since May 31, just days after violent protests broke out following the death of George Floyd, a Black man who was killed after a police officer kneeled on his neck.

Biden, meanwhile, has spoken out against the rioting and looting, but he hasn’t been as authoritative on the matter.

“Shooting in the streets of a great American city is unacceptable,” the former Vice President said in a speech on Monday. “I condemn this violence unequivocally.”

However, his running mate Sen. Kamala Harris of California, the state’s former attorney general, tweeted her support of donating money to help bail out those arrested amid the civil unrest before just recently condemning the violence.

Additionally, Democrats have taken political heat for the vast majority of the unrest occurring in cities that have Democratic mayors and states that have Democratic governors who have balked at Trump’s offer to help resolve the violence.

A recent poll conducted by Leib Litman found that 10% of Trump voters and 5% of Biden voters are not honest in answering polling questions. That suggests the race is a lot tighter than the 6.9-point lead that Biden enjoys nationally and the 2.7-point lead he has in swing states.

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Kolanovic’s analysis found that the so-called cancel-culture effect artificially boosts Biden’s numbers by 5 to 6 points.

While Trump appears to be gaining momentum, Biden and the Democrats continue to attack Trump for his handling of the COVID-19 pandemic, which has infected more than 6 million Americans and killed more than 183,600.

Stay-at-home orders issued by governors and aimed at slowing the spread of the disease sent the U.S. economy spiraling into its sharpest slowdown of the post-World War II era and led to more than 22 million Americans at least temporarily losing their jobs since the start of the pandemic. The economy has recovered about 42% of the jobs lost due to the coronavirus-induced recession.

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However, there are signs the U.S. has gotten through the worst of the pandemic and that it could “subside in time for the election,” Kolanovic said, pointing to the number of new cases declining by about 20,000 per day per month and the fact that most states with large populations have already seen the virus run its course.

Kolanovic believes Trump winning reelection could have a "dramatic" impact on sectors and factors, like momentum versus value; cyclicals versus tech; and environmental, social, and corporate governance names.