Skip to main content

Pollsters and Bookies got it wrong: Trump looks set to win


  • Trump looks set to become next US President
  • Both pollsters and bookies called this totally wrong
  • Asymmetric downside risk means near-term mark down of risk assets
Voting results
Trump swept to victory with 42 of 50 states declared, Trump leads Clinton 244 electoral votes to 215, with 26 to win, collecting 48.2% of the vote vs Clinton 47.1% (as at 0630 GMT today).

The result with 46 of 50 states declared gives a Trump win of 278 electoral votes to 218, with 48.0% of the Vote vs Clinton 47.3% (as at Trump acceptance speech).

Impact
EQUITIES: expect US equities (NYSEARCA:SPX; LON:CSPX) and global equities (NYSEARCA:ACWI; LON:SSAC) to be volatile, with emerging markets (NYSEARCA:EEM; LON:IEEM) to be negatively impacted, particularly Mexico (NYSEARCA:EWW; LON:CMXC).
From a sector perspective expect a positive reaction for financials (NYSEARCA:XLF; LON:SXLF), healthcare (NYSEARCA:XLV; LON:SXLV) and US infrastructure/utilities (NYSEARCA:XLU; LON:SXLU).

BONDS: expect near-term flight to safety driving government bond (NYSEARCA:TLT; LON:IGLO) yields down and prices up.

ALTERNATIVES: Expect flight to safety to drive relative outperformance in gold (NYSEARCA:SGOL; LON:GBS) and precious metals (NYSEARCA:GLTR; LON:AIGP), oil (NYSEARCA:IEO; LON:SPOG) as well as copper (NYSEARCA:JJC; LON:COPA).

CURRENCY: expect USD short-term weakness vs GBP, CHF and JPY.

Why pollsters got it wrong?
The result compares to pre-election polls of Clinton 46.8%, Trump 43.6%.  Pollsters got it wrong for two reasons 1) voter turnout amongst disaffected voters was higher so mix of voters in sample size is no longer indicative, and 2) “secret Trumpers” – voters who may not admit to voting for Trump in polls, but did.
Source: RealClearPolitics

Why Bookies got it wrong?
By analysing political spread-betting odds, it is possible to derive an implied probability figure for the respective candidates.  On the night before election, these gave Clinton an implied 84% probability of success and Trump 16%.  As results started coming in, the implied probability for Trump spiked to close at 97% before betting closed.

The probabilities were so wrong because a market-derived estimate is only as good as the aggregate views of the market participants betting against each other.  And given spread-betting is more a past-time for affluent city types, rather than Trump’s core supporters, it is, like Brexit, liable to the same “groupthink” effect which makes it impossible for them to fathom that anyone would vote for Trump, because they over-estimate the size and influence of their “group”.
Source: betdata

What next?
The risks to a Trump victory were asymmetrical on the downside to a Clinton victory on the upside – and markets will react accordingly.

The next few weeks will set the tone of the new President’s administration.  It will soon become clear whether or not the toxicity of this campaign will subside in favour of pragmatic policy focus, now that the election is over.

Personalities aside, with the new administration, markets need to assess is the outlook for 1) Growth and earnings; 2) inflation and interest rates; and 3) employment and trade.
So once the dust settles, and the ticker tape is swept up, the focus will shift policy in Trump’s first 100 days and, more imminently, the Fed’s rate decision in December.

NOTICES: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.  I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it.
This article has been written for a US and UK audience.  Tickers are shown for corresponding and/or similar ETFs prefixed by the relevant exchange code, e.g. “NYSEARCA:” (NYSE Arca Exchange) for US readers; “LON:” (London Stock Exchange) for UK readers.  For research purposes/market commentary only, does not constitute an investment recommendation or advice, and should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.  This blog reflects the views of the author and does not necessarily reflect the views of Elston Consulting, its clients or affiliates.  For information and disclaimers, please see www.elstonconsulting.co.uk
Photo credit: Google; Chart credit: RealClearPolitics, betdata; Table credit: N/A
Labels:

Comments

Post a Comment

Popular posts from this blog

Market timing is a mug’s game

John Authers’ Long View article in the FT this weekend addresses market timing.  While he claims that just passive investors are such bad timers, we would go further: most are. Attempts to time the market (choosing the right moment to buy or sell into risk assets) are a mug’s game.  Great for brokerages that delight in investors’ fees levied to senselessly overtrade.  Bad for investor’s portfolio outcomes.  Despite the annual survey by Dalbar that investors’ attempts to time the market is really bad for their portfolio, people – including some portfolio managers – still try and have a go. The problem is that in timing the market, we become slaves to our behavioural biases around entry points, and the noise around market sentiment.  An investor fearing Brexit might have – out of emotion – sold everything to cash stocked up on gold sovereigns and run for the hills whilst tracing Irish ancestry.  The smart thing was to acknowledge sterling weakn...
1 comment
Read more

The cost of Marmite, and Brexit’s quiet fear gauge

UK commentators are looking for data points that vindicate the Referendum result one way or the other Sterling’s slide and the FTSE 100 Index level together or in isolation are not the best indicators for a Brexit fear gauge The potential inflationary impact of a ‘hard Brexit’ has caused UK breakeven rates to spike, creating a real challenge for the Bank of England Give me a sign Just as high priests in Roman times, after slaughtering their offering, examined its entrails to gauge the Gods’ favour,  so too have UK commentators been searching for any statistical insight or market data point to declare whether the shock Brexit result is likely to lead to economic success or failure. The data point phoney war The data that has come out since the EU Referendum on 23 rd June 2016 is meaningless as we still don’t know what Brexit looks like.  It’s been a phoney war for headlines, as stunned commentators search for a gauge to measure policymakers by. ...
Post a Comment
Read more

UK votes for Brexit

UK public votes 52% to 48% to leave the EU: the exit process could take 2 to 4 years. Regional differences will create further constitutional strain on the UK Pound plunging, and expect UK Equities to follow suit. Expect flight to safety away from risk assets as the market digests the potential for structural change. Brexit it is The UK public has voted to leave the European Union after 43 years in yesterday’s referendum. Leave has 51.7% of votes so far with 71.8% turnout (higher than pervious general election) suggests a vote for Brexit by a narrow margin. The leaving process could take a minimum of two years, and even Leave campaigners don’t expect the process to complete until 2020. Opinion polls were too close to call Polling pointed to a closer result and recent momentum for the Remain campaign which had given markets an element of (false) security: the final poll put 45% Leave, 44% Remain, 11% Don’t Know.  While the binary nature of the debate suggested...
Post a Comment
Read more