Time to address the elephant in the room—the election is next week. Today we want to share with you the current probabilities for the election outcome. These probabilities are what are currently priced into the financial markets.
If the results of the election materially differ from these odds, then expect to see financial markets adjust to the new reality in just a few days. We expect a lot of volatility post election which could exponentially increase if the outcome is delayed for whatever reason.
All of the probabilities in this note come from Polymarket. It is the world’s largest prediction market, allowing people to buy or sell shares in the outcomes of future events. Basically, its a large betting platform—so these odds are driven by financial motivations and not political ideology.
In the last month, the odds for a Trump victory have surged by 10 percentage points to 60%. This appears to confirm the pricing in Treasury Bonds, USD currency trades and inflation futures.
Financial markets in general dislike uncertainty. Their “happy place” is when the government is deadlocked with no party controlling both the White House and Congress. Presently, the odds of Republicans sweeping the Presidency, Senate and House are just 39%, with odds of Democrats sweeping at 14%.
If either party does gain control of both the Presidency and Congress, we would expect a large spike in volatility in markets until the legislative agenda is more certain.
This year just six states will most likely determine the Presidential contest. Trump is presently favored to win in four of those states.
Obviously, the people transacting on Polymarket don’t have anymore incite into the election outcome than other’s but financial markets do appear to agree with the current betting odds.
We don’t know what will happen next week, but we are confident that whatever the outcome financial markets will adjust quickly once uncertainty is removed.
