Policy Trumps character
Republicans closing in on 'Red Trifecta.'
Published November 8 2024
Bottom Line
When push came to shove in this contentious presidential election, it seems most voters opted to prioritize the prospect of better fiscal policies out of Washington rather than focus on personalities. Equity markets have soared in approval.
Historic victory Donald Trump completed a remarkable political comeback to become our 47th president. He defeated Vice President Kamala Harris by 312 to 226 electoral college votes, sweeping all seven of the key swing states (Pennsylvania, Georgia, North Carolina, Michigan, Wisconsin, Arizona and Nevada). Importantly, Trump is the first Republican president since George W. Bush in 2004 to win the popular vote, amassing 73.5 million votes so far (50.7% of total) compared with 69 million (47.7%) for Harrison.
In addition, Trump is only the second president to win re-election after losing his first bid. Grover Cleveland was elected our 22nd president in 1884, lost in 1888 to Benjamin Harrison then re-gained the White House as our 24th president in 1892.
Senate flips to Republican control Our highest conviction forecast this election cycle was that the Senate would revert to Republican control—regardless of the presidency—largely due to state-specific races in West Virginia (where incumbent Sen. Joe Manchin had retired) and in deep red Montana (where three-term incumbent Jon Tester was facing a stiff challenge from retired Navy Seal Tim Sheehy). Aside from those victories, Republicans also orchestrated flips in purple Pennsylvania (where incumbent Bob Casey lost to challenger David McCormick) and in deep-red Ohio (where Bernie Moreno defeated three-term incumbent Sherrod Brown).
That four-seat pick-up elevated Republicans from a 49-51 pre-election deficit to a 53-47 majority now. Moreover, Republicans narrowly missed picking up additional seats in Nevada, Michigan and Wisconsin.
Down-ballot impact on the House of Representatives In our view, control of the lower chamber in Congress was likely to follow the race for the White House, as 80% of the electorate has voted straight tickets over the past 30 years. Republicans enjoyed a narrow pre-election, eight-seat lead in the House (220 versus 212, with three open seats). As of this writing, the vote count is ongoing, with 21 seats still to be decided. To date, Republicans have executed a four-seat pickup, providing them with a modest 12-seat majority, which we expect may slim to a nine-seat majority when the dust settles in a week or so. But we do need to brace ourselves for potential recounts and lawsuits.
Financial markets had begun to anticipate a Red Wave The prospect of a Trump victory with consolidated control of Congress suggests the potential for fiscal policy legislation that could result in stronger economic growth and resurgent inflation in coming years. As a result, the volatility index (VIX) more than doubled from 10 in mid-July to 23 last week, while gold rallied by 19% from late June to last week’s record high of $2,801 per troy ounce. The U.S. dollar strengthened by nearly 5% from 1.12 versus the euro in late September to 1.07 today, and benchmark 10-year Treasury yields have risen from 3.60% in mid-September to 4.48% this week.
Fueled by this enthusiasm and optimism, equity markets have surged. The S&P 500 soared by 17% from its August 5 intra-day low to today’s record high of 6,000, while the Dow Jones Industrial Average has similarly risen more than 14% to today’s record high of 44,052. The Nasdaq Composite leapt by nearly 23% over this same period to today’s record high 19,301, and the Russell 2000 small-cap index rose by nearly 21% (9% of which was just this week) to 2,402.
What went wrong for Harris? The key policy issues for voters this election cycle were the economy, inflation, and border security/immigration, on which Trump enjoyed comfortable 5-10% leads over Harris in the polls. By a wide margin, the most important social issue was reproductive rights, on which Harris enjoyed a sizable advantage over Trump, particularly among women voters.
Harris promoted herself as the candidate of change, trying to distance herself from Biden and promising to implement better policies. Biden’s weighted-average approval rating had plunged to a dismal 37% after his disastrous debate performance against Trump on June 27. But one of her biggest problems is that she is Biden’s sitting vice president, and many voters seem to have held her responsible for his policy record. In a media interview during the campaign, Harris said that she couldn’t think of anything that she would do differently.
When Biden dropped out of the race on July 21, the Democrats substituted Harris at the top of the ticket. But her unprecedented coronation—without the bruising gauntlet of a primary campaign—was a double-edged sword. Voters generally disliked the fact that she had received special treatment by her party, and she could have benefitted from the rough-and-tumble of the primaries. Some voters likely were also frustrated with Harris’ lack of policy detail and her decision to avoid potentially difficult press conferences and unscripted interviews with journalists from unfriendly networks.
Harris’ selection of Gov. Tim Walz as her running mate also drew criticism. Many believed that Pennsylvania Gov. Josh Shapiro or Michigan Gov. Gretchen Whitmer would have been stronger choices. That decision came home to roost in Walz’s poor vice-presidential debate against Sen. J.D. Vance.
Wealth effect not universal The S&P 500 has soared by 46% over the last 13 months, certainly benefitting the 60% of Americans who own stock in their retirement and college-savings accounts. Two-thirds of Americans also own their own homes, whose prices have risen by 60% and 50% for existing and new homes, respectively, from pandemic troughs. Democrats believed that Biden’s fiscal policies were responsible for most of this surge in wealth, which should have carried Harris to victory.
But Trump directed his campaign to the bottom half of America, as measured by income and wealth. These people generally did not benefit from the increase in real estate and stock prices, and their wages have lagged the 20-25% inflation spike we experienced over the past four years. Consequently, the fiscal policies espoused by the two parties, on key issues such as taxes, regulation, immigration, and energy, among many others, were vastly different. Trump’s fiscal policies seem to have resonated more with the voting public, many of whom appeared to feel that Harris’ policies were out of touch.