Executive Summary
The race for control of the White House has tightened somewhat, as Joe Biden's lead in most polling averages has declined moderately from its summer highs. But, with roughly a six point lead according to the Real Clear Politics (RCP) national polling average, Biden still appears to be in the driver's seat. As of this writing, PredictIt betting markets imply Joe Biden has roughly a 59% chance of winning, while FiveThirtyEight's model is more bullish on Biden, giving him a 76% chance of winning. It is perhaps worth remembering that even if Biden has a 76% chance of winning, Trump's 24% probability of winning the election is about the same odds as flipping a coin twice and getting heads both times. While unlikely, that is far from a one-in-a-million event.
Of course, President Trump could chip away at Joe Biden's lead in the remaining weeks of the campaign. And furthermore, we do not believe President Trump needs to pull even in the national vote to win the election. Indeed, he won the 2016 race while losing the national vote by about three percentage points. In 2016, key swing states like Pennsylvania, Michigan, Wisconsin and Florida voted roughly 3-4 points to the right of the nation, helping to swing the Electoral College to Trump despite his popular vote loss.
As things stand today, a 2016-sized polling error in these key swing states would still yield a Biden victory, holding the rest of the electoral map from 2016 constant and using the current RCP polling average for each state. But the election is not being held today, and circumstances could change significantly in the weeks ahead. As always, we will continue to keep our readers informed of the latest developments, and in our next piece we will compare some of the key economic policy proposals of the two major party candidates.
Biden Maintains the Lead, but Will It Hold Come Election Day?
In mid-July, we published a summer update on the state of the 2020 U.S. national election. At that point in time, Democratic nominee Joe Biden had about a nine point lead in the RCP polling average. In the key swing states of Wisconsin, Michigan, Pennsylvania and Florida, Biden's lead ranged from +5.2 in Florida to +7.5 in Michigan.
Fast forward to today and the race has narrowed somewhat. At present, Joe Biden's lead in the RCP national polling average is +5.9, a tightening of a few points relative to his summer highs (Figure 1). At this point in 2016, the race was actually polling quite closely, with Hillary Clinton up just +1.5 on September 18 (Figure 2). We continue to be struck by the relative stability of 2020 polling. As can be seen in the two charts below, the 2016 race was marked by considerable swings over the course of the year, oscillating between periods where Hillary Clinton polled well ahead of Donald Trump and periods where the race appeared tied or Trump even had a small lead. Contrast that with 2020, where Joe Biden has led pretty much the whole year by a decent margin.
Source: Real Clear Politics and Wells Fargo Securities
Of course, President Trump could chip away at Joe Biden's lead in the remaining weeks of the campaign. As we noted in our previous report, Donald Trump closed well in 2016, cutting Hillary Clinton's national polling lead in half in the final weeks of the campaign. Exit polls also provided additional evidence that Trump won a majority of voters who decided in the final month of the race. And furthermore, we do not believe Donald Trump needs to pull even in the national vote to win the election. Indeed, he won the 2016 race while losing the national vote by about three percentage points, in line with the RCP polling average on Election Day. In 2016, swing states like Pennsylvania, Michigan, Wisconsin and Florida voted roughly 3-4 points to the right of the nation as a whole. Thus, if 2016 is any guide, Donald Trump could be within striking distance of a win even if Biden is polling 3-4 points ahead at the national level.
Furthermore, although the polling at the national level proved to be fairly accurate in 2016, there were some polling issues at the state level, particularly in Wisconsin and Michigan. These were two states that were generally considered fringe swing states at best: prior to 2016 no Republican presidential candidate had won Michigan since 1988, and a Republican candidate had not won Wisconsin since 1984. This led us to ask a question: what if the key swing states see a polling error about the size of the ones that occurred in 2016? What would that do the electoral map, holding everything else equal?
Source: Real Clear Politics and Wells Fargo Securities
Figure 3 looks at the five states in the 2016 election that had the closest margins and were won by Donald Trump. As can be seen in the third column, the polling errors seen in these five states varied significantly. In Wisconsin and Michigan, the errors were fairly large at roughly seven and four points, respectively. In contrast, the Florida polling was fairly accurate, and in Arizona Trump actually slightly underperformed the polls. The far right column in Figure 3 shows the current RCP polling average as of September 18. As things stand today, a 2016-sized polling error in each of these five states would lead to Biden winning all but Wisconsin. Holding the rest of the electoral map from 2016 constant, that would yield the hypothetical scenario seen below in Figure 4.
Source: Wells Fargo Securities
While this should probably be considered encouraging news for Joe Biden, the race remains far from a slam dunk for the challenger. Although we do not consider it especially likely, it is certainly possible that state-level polling errors could be even bigger in 2020. Alternatively, and perhaps more likely, the race could tighten a few more percentage points in the weeks ahead. A few more points of tightening and a fairly normal sized polling error in some key states could very well put Donald Trump on the road to another narrow victory. As of this writing, PredictIt betting markets imply Joe Biden has a 59% chance of winning, while FiveThirtyEight's model is more bullish on Biden, giving him a 76% chance of winning. It is perhaps worth remembering that even if Biden has a 76% chance of winning, Trump's 24% probability of winning the election is about the same odds as flipping a coin twice and getting heads both times. While unlikely, that is far from a one in a million event.
One final point we believe it is important to keep in mind is that polling errors can swing both ways. In 2012, for instance, the race appeared quiet close on election day, with the Real Clear Politics national polling average showing President Obama up just +0.7 over Republican candidate Mitt Romney. Many political analysts projected a fairly close race in both the popular vote and the Electoral College. President Obama went on to win fairly comfortably, winning the popular vote by about four percentage points and winning the Electoral College 332-206. We remind our readers that there is always the possibility that the polling error could swing back the other direction and understate Joe Biden's support.
Congressional Outlook
What about the outlook for control of Congress? For a description of what each party needs to either retain or capture the House/Senate, see our mid-July report. In short, the polling has improved a bit for Republicans here too, though in an absolute sense it still remains fairly favorable for the Democrats. In generic ballot polling, the Democrats had an +11 point lead at the time of our mid July update according to the RCP polling average. At present, the spread is +5.7 points for Democrats (Figure 5). This tightening makes some intuitive sense to us; the mid-July reading of +11 signaled a more favorable environment than 2008, when Barack Obama won the presidency with sizable majorities in both chambers of Congress. A spread of +5.7 is still much stronger for Democrats than what the polls signaled in 2016, where Democrats had only a slight edge on Election Day in the generic ballot.
In our view, the generic ballot polling data are consistent with a race that has tightened moderately since mid-July but that remains more favorable to Democrats than the 2016 environment. PredictIt betting markets give the Democrats a 56% chance of taking the Senate and an 84% chance of keeping the House of Representatives. Political analyst Larry Sabato's widely-followed Crystal Ball projections currently rate the Senate as 49-48 for the Republicans, with three states (North Carolina, Maine and Iowa) considered toss-ups. Of course, the race for control of the House and Senate, like the race for control of the White House, could change significantly in the weeks ahead.
Download The Full Special Reports
Recently, the stock market has experienced high levels of volatility. If you are thinking about participating in fast moving markets, please take the time to read the information below. Wells Fargo Investments, LLC will not be restricting trading on fast moving securities, but you should understand that there can be significant additional risks to trading in a fast market. We've tried to outline the issues so you can better understand the potential risks. If you're unsure about the risks of a fast market and how they may affect a particular trade you've considering, you may want to place your trade through a phone agent at 1-800-TRADERS. The agent can explain the difference between market and limit orders and answer any questions you may have about trading in volatile markets. Higher Margin Maintenance Requirements on Volatile Issues The wide swings in intra-day trading have also necessitated higher margin maintenance requirements for certain stocks, specifically Internet, e-commerce and high-tech issues. Due to their high volatility, some of these stocks will have an initial and a maintenance requirement of up to 70%. Stocks are added to this list daily based on market conditions. Please call 1-800-TRADERS to check whether a particular stock has a higher margin maintenance requirement. Please note: this higher margin requirement applies to both new purchases and current holdings. A change in the margin requirement for a current holding may result in a margin maintenance call on your account. Fast Markets A fast market is characterized by heavy trading and highly volatile prices. These markets are often the result of an imbalance of trade orders, for example: all "buys" and no "sells." Many kinds of events can trigger a fast market, for example a highly anticipated Initial Public Offering (IPO), an important company news announcement or an analyst recommendation. Remember, fast market conditions can affect your trades regardless of whether they are placed with an agent, over the internet or on a touch tone telephone system. In Fast Markets service response and account access times may vary due to market conditions, systems performance, and other factors. Potential Risks in a Fast Market "Real-time" Price Quotes May Not be Accurate Prices and trades move so quickly in a fast market that there can be significant price differences between the quotes you receive one moment and the next. Even "real-time quotes" can be far behind what is currently happening in the market. The size of a quote, meaning the number of shares available at a particular price, may change just as quickly. A real-time quote for a fast moving stock may be more indicative of what has already occurred in the market rather than the price you will receive. Your Execution Price and Orders Ahead In a fast market, orders are submitted to market makers and specialists at such a rapid pace, that a backlog builds up which can create significant delays. Market makers may execute orders manually or reduce size guarantees during periods of volatility. When you place a market order, your order is executed on a first-come first-serve basis. This means if there are orders ahead of yours, those orders will be executed first. The execution of orders ahead of yours can significantly affect your execution price. Your submitted market order cannot be changed or cancelled once the stock begins trading. Initial Public Offerings may be Volatile IPOs for some internet, e-commerce and high tech issues may be particularly volatile as they begin to trade in the secondary market. Customers should be aware that market orders for these new public companies are executed at the current market price, not the initial offering price. Market orders are executed fully and promptly, without regard to price and in a fast market this may result in an execution significantly different from the current price quoted for that security. Using a limit order can limit your risk of receiving an unexpected execution price. Large Orders in Fast Markets Large orders are often filled in smaller blocks. An order for 10,000 shares will sometimes be executed in two blocks of 5,000 shares each. In a fast market, when you place an order for 10,000 shares and the real-time market quote indicates there are 15,000 shares at 5, you would expect your order to execute at 5. In a fast market, with a backlog of orders, a real-time quote may not reflect the state of the market at the time your order is received by the market maker or specialist. Once the order is received, it is executed at the best prices available, depending on how many shares are offered at each price. Volatile markets may cause the market maker to reduce the size of guarantees. This could result in your large order being filled in unexpected smaller blocks and at significantly different prices. For example: an order for 10,000 shares could be filled as 2,500 shares at 5 and 7,500 shares at 10, even though you received a real-time quote indicating that 15,000 shares were available at 5. In this example, the market moved significantly from the time the "real-time" market quote was received and when the order was submitted. Online Trading and Duplicate Orders Because fast markets can cause significant delays in the execution of a trade, you may be tempted to cancel and resubmit your order. Please consider these delays before canceling or changing your market order, and then resubmitting it. There is a chance that your order may have already been executed, but due to delays at the exchange, not yet reported. When you cancel or change and then resubmit a market order in a fast market, you run the risk of having duplicate orders executed. Limit Orders Can Limit Risk A limit order establishes a "buy price" at the maximum you're willing to pay, or a "sell price" at the lowest you are willing to receive. Placing limit orders instead of market orders can reduce your risk of receiving an unexpected execution price. A limit order does not guarantee your order will be executed -" however, it does guarantee you will not pay a higher price than you expected. Telephone and Online Access During Volatile Markets During times of high market volatility, customers may experience delays with the Wells Fargo Online Brokerage web site or longer wait times when calling 1-800-TRADERS. It is possible that losses may be suffered due to difficulty in accessing accounts due to high internet traffic or extended wait times to speak to a telephone agent. Freeriding is Prohibited Freeriding is when you buy a security low and sell it high, during the same trading day, but use the proceeds of its sale to pay for the original purchase of the security. There is no prohibition against day trading, however you must avoid freeriding. To avoid freeriding, the funds for the original purchase of the security must come from a source other than the sale of the security. Freeriding violates Regulation T of the Federal Reserve Board concerning the extension of credit by the broker-dealer (Wells Fargo Investments, LLC) to its customers. The penalty requires that the customer's account be frozen for 90 days. Stop and Stop Limit Orders A stop is an order that becomes a market order once the security has traded through the stop price chosen. You are guaranteed to get an execution. For example, you place an order to buy at a stop of $50 which is above the current price of $45. If the price of the stock moves to or above the $50 stop price, the order becomes a market order and will execute at the current market price. Your trade will be executed above, below or at the $50 stop price. In a fast market, the execution price could be drastically different than the stop price. A "sell stop" is very similar. You own a stock with a current market price of $70 a share. You place a sell stop at $67. If the stock drops to $67 or less, the trade becomes a market order and your trade will be executed above, below or at the $67 stop price. In a fast market, the execution price could be drastically different than the stop price. A stop limit has two major differences from a stop order. With a stop limit, you are not guaranteed to get an execution. If you do get an execution on your trade, you are guaranteed to get your limit price or better. For example, you place an order to sell stock you own at a stop limit of $67. If the stock drops to $67 or less, the trade becomes a limit order and your trade will only be executed at $67 or better. Glossary All or None (AON) A stipulation of a buy or sell order which instructs the broker to either fill the whole order or don't fill it at all; but in the latter case, don't cancel it, as the broker would if the order were filled or killed. Day Order A buy or sell order that automatically expires if it is not executed during that trading session. Fill or Kill An order placed that must immediately be filled in its entirety or, if this is not possible, totally canceled. Good Til Canceled (GTC) An order to buy or sell which remains in effect until it is either executed or canceled (WellsTrade® accounts have set a limit of 60 days, after which we will automatically cancel the order). Immediate or Cancel An order condition that requires all or part of an order to be executed immediately. The part of the order that cannot be executed immediately is canceled. Limit Order An order to buy or sell a stated quantity of a security at a specified price or at a better price (higher for sales or lower for purchases). Maintenance Call A call from a broker demanding the deposit of cash or marginable securities to satisfy Regulation T requirements and/or the House Maintenance Requirement. This may happen when the customer's margin account balance falls below the minimum requirements due to market fluctuations or other activity. Margin Requirement Minimum amount that a client must deposit in the form of cash or eligible securities in a margin account as spelled out in Regulation T of the Federal Reserve Board. Reg. T requires a minimum of $2,000 or 50% of the purchase price of eligible securities bought on margin or 50% of the proceeds of short sales. Market Makers NASD member firms that buy and sell NASDAQ securities, at prices they display in NASDAQ, for their own account. There are currently over 500 firms that act as NASDAQ Market Makers. One of the major differences between the NASDAQ Stock Market and other major markets in the U.S. is NASDAQ's structure of competing Market Makers. Each Market Maker competes for customer order flow by displaying buy and sell quotations for a guaranteed number of shares. Once an order is received, the Market Maker will immediately purchase for or sell from its own inventory, or seek the other side of the trade until it is executed, often in a matter of seconds. Market Order An order to buy or sell a stated amount of a security at the best price available at the time the order is received in the trading marketplace. Specialists Specialist firms are those securities firms which hold seats on national securities exchanges and are charged with maintaining orderly markets in the securities in which they have exclusive franchises. They buy securities from investors who want to sell and sell when investors want to buy. Stop An order that becomes a market order once the security has traded through the designated stop price. Buy stops are entered above the current ask price. If the price moves to or above the stop price, the order becomes a market order and will be executed at the current market price. This price may be higher or lower than the stop price. Sell stops are entered below the current market price. If the price moves to or below the stop price, the order becomes a market order and will be executed at the current market price. Stop Limit An order that becomes a limit order once the security trades at the designated stop price. A stop limit order instructs a broker to buy or sell at a specific price or better, but only after a given stop price has been reached or passed. It is a combination of a stop order and a limit order. These articles are for information and education purposes only. You will need to evaluate the merits and risks associated with relying on any information provided. Although this article may provide information relating to approaches to investing or types of securities and investments you might buy or sell, Wells Fargo and its affiliates are not providing investment recommendations, advice, or endorsements. Data have been obtained from what are considered to be reliable sources; however, their accuracy, completeness, or reliability cannot be guaranteed. Wells Fargo makes no warranties and bears no liability for your use of this information. The information made available to you is not intended, and should not be construed as legal, tax, or investment advice, or a legal opinion.
Recommended Content
Editors’ Picks
EUR/USD trades weak below 1.0800 amid Good Friday lull, ahead of US PCE
EUR/USD remains depressed below 1.0800, as traders lack directional impetus amid minimal volatility and thin liquidity on Good Friday. The pair keenly awaits the US PCE inflation data and Fed Chair Powell's speech for fresh hints on next week's price action.
GBP/USD holds steady above 1.2600 as markets stay calm on Good Friday
GBP/USD trades sideways above 1.2600 amid a typical Good Friday trading lull. A broadly firmer US Dollar could keep any upside attempts limited in the pair ahead of the US PCE inflation data and Fed Chair Powell's appearance.
Gold ends Q1 2024 at record highs, what’s next?
Gold is sitting at an all-time high of $2,236, lacking a trading impetus amid holiday-thinned conditions on Good Friday. Most major world markets, including the United States are closed in observance of Holy Friday, leaving volatility around Gold price highly subdued.
Ripple's move above this key level could trigger nearly 50% rally for XRP
Ripple price has overcome a critical resistance level and flipped into a support floor on the weekly time frame. This development happened while XRP tightly consolidated for roughly 250 days.
US core PCE inflation set to ease in February on month as Federal Reserve rate cut bets for June mount
The core Personal Consumption Expenditures Price Index is set to rise 0.3% MoM and 2.8% YoY in February. The revised Summary of Projections showed that policymakers upwardly revised end-2024 core PCE forecast to 2.6% from 2.4%.