The Nov. 3 U.S. presidential election has the potential to be the biggest stock market catalyst of the year. The latest numbers from online prediction market PredictIt suggest Democrats have a 52% chance of capturing the White House from President Donald Trump, but former hedge fund manager Whitney Tilson suggested last week that a potential Democratic victory in November could be more lopsided than investors realize.
In his daily newsletter last week, Tilson outlined four reasons why he believes Democrats will not only win the presidency, but also gain control of both houses of Congress in November. Tilson said he is not predicting a “liberal landslide” for partisan reasons, but rather based on his analysis of the situation in America today.
1. First, Tilson said America hasn’t made as much progress as he hoped in finding and advancing a cure or vaccine for COVID-19.
2. Tilson also said the U.S. has dug itself into a tremendous economic hole in combating the virus.
“We’re in uncharted waters in so many ways — with the economy in another Great Depression, as much as a quarter of our workforce unemployed, and budget-busting spending to try to offset the massive hardships that millions of businesses and people are facing.”
3. Third, Tilson said history suggests a shift of power in Washington. In the 2018 midterm elections, Democrats gained a net total of 41 House seats. In the 18 months since that election, Tilson said the economy has gone from booming to crashing, and it’s unlikely President Donald Trump has won over many new supporters.
The 2008 election is another easy comparison given that Democrat Barack Obama was elected by a wide margin in the middle of an economic crisis, he said.
4. Finally, Tilson said polls indicate it could be a tough election for Republicans. Tilson said polls can certainly be wrong, as the 2016 election proved.
Yet state-by-state polls show Trump trailing in the key swing states of Pennsylvania, Michigan and Wisconsin. In addition, Trump is trailing in must-win states such as Frorida, North Carolina, Ohio and Arizona.
“In conclusion, every piece of evidence I can find points to another liberal landslide on November 3. That’s not to say it’s inevitable, however, because a lot can change between now and then,” Tilson said.
Tilson said there is roughly a 70% chance that Democrats gain control of both the Senate and the White House in November.
Conventional wisdom suggests that the Republican Party is better for the economy and the SPDR S&P 500 ETF Trust (NYSE: SPY) given its platform of pro-business, free market policies. Yet a recent study by Natixis Investment Managers found that since 1976, U.S. equities have gained an average of 14.3% annually under Democratic presidents and just 10.8% annually under a Republican presidents.
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Benzinga file photo by Dustin Blitchok.