Biden still remains on course for victory. But vulnerable on China, he has proposed a 30.8% corporate tax rate for companies that outsource manufacturing/services overseas. The improving economy will help Trump tighten the polls in October, and Biden is likely to lose ground after the three debates. Delayed postal/absentee ballots will likely mean an uncertain outcome on Election night, raising the likelihood of a protracted dispute about the result that makes 2000 seem tame. We recommend taking profits on equities by early-October, and being underweight equities through November.
As expected, the presidential polls narrowed after the party conventions, particularly after the more slick Republican convention (much of it held in person with several speeches from the White House), which President Trump used to change the conversation from Covid-mismanagement to “law and order”, particularly the issue of urban protests (against the killings by police of largely innocent black men) turning toward violence, vandalism and looting. Both conventions sought to reach out to the centrist voter, Biden by showcasing Republican supporters (ex-Gov. John Kasich, who was Trump’s last rival in the 2016 race, ex-Secretary of State Colin Powell, and the family of the late Sen. John McCain), and Trump unusually showcasing black and women supporters in an unorthodox bid to appeal to centrists who may have thought he was racist/sexist. The actual polling “bump” that Trump received from the convention was modest (about 2 percentage points, albeit better than Biden’s bump of less than 1pp in the average poll), but the betting odds narrowed sharply in the week after the Republican convention (with Trump coming within 1pp of Biden).
Since then, however, the race has returned to where it was in mid-August, with Biden having a handsome lead (average over 7.5 percentage points) in nationwide polls (and the betting odds), and retaining a solid lead in battleground states (Pennsylvania, Michigan, Wisconsin, Arizona, North Carolina, Florida) that Trump won in 2016. Trump leads narrowly in Ohio. But Biden has built a sizable lead in Arizona (where his closeness to late Sen. John McCain (R-Az) — highlighted in the Democratic convention — has helped) and North Carolina; the latter has been carried by a Democrat only twice in the last 52 years, the former only once in the past 72 years. If the election were held today, Biden would win by a wide margin in the Electoral College and popular vote.
However, the race will likely tighten in October, as the economy continues to recover (with a big QoQ rebound likely in 3Q 2020 GDP growth, announced at October-end), the US Covid curve continues to flatten (new-case numbers have averaged 39K in the past week, from a peak of 69K in the final week of July), and Trump gains a bit from the debates. Biden, vulnerable on the fact that China-trade was omitted from his convention, has a rash plan to impose a 30.8% corporate tax rate on companies that outsource manufacturing/services overseas (likely to hit all large companies). Biden remains likely to win; but first, there will be uncertainty on Election night because postal/absentee ballots likely will not be counted that day — exaggerating Trump’s vote share, and seemingly tightening the election even more in the swing states. The uncertainty will make for a more volatile November in markets: with the likely winner calling for a 30.8% corporate tax rate, amid calls for insurrection from the losing side, we now expect an even larger sell-off (7-10%) in the market in November amid the growing uncertainty.