Yes, we did predict a near-term Biden withdrawal. However, before we could publish, the first two questions were answered. Joe Biden did the honourable thing and put country and party before himself. Whatever you may think of him, you must give him a tip of your hat. This sort of behaviour is not seen very often.

The third question remains extant and relevant. Can Kamala Harris win? This is relevant for many reasons, not least as far as market implications are concerned. However, will Harris actually get the nomination? Let’s deal with that first. The short answer is yes.

NASA’s definition of a planet is straightforward. Does it clear the neighbourhood around its orbit? Biden’s immediate and full endorsement of Harris cleared the orbit. If this race had started much earlier, the Democrats would have had a number of potentially very strong candidates, including Gretchen Whitmer, Governor of Michigan (an important swing state), Gavin Newsom, Governor of California, Josh Shapiro, Governor of Pennsylvania (another important swing state), and several other very credible candidates. Kamala Harris may not have succeeded in a competitive race but that never happened. In the immortal words of many people, “we are where we are”.  

Harris’ potential opponents quickly rallied around her – except for the Obamas. Michelle Obama is an extremely popular Black woman and might be the only person who could now realistically deprive Harris of the nomination, and she would arguably be a much stronger adversary for Trump. But perfection is the enemy of the good. Michelle Obama has often stated she is not interested in running for President, having done her eight years in the White House with her husband, Barack.

Harris has lined up an impressive array of important endorsements, she has raised a prodigious amount of money in a very short time, and she has apparently been endorsed by a sufficient number of convention delegates to win the nomination. Michelle Obama might have had an opportunity had Biden not been so clear and so immediate in endorsing Harris. But, as noted above, this cleared the Harris orbit.

Can Kamala Harris win?

As of late last week, the betting odds on the Presidential race from Real Clear Politics were Donald Trump leading strongly at 61.3%, followed, interestingly, by Kamala Harris at 17.7%.  Joe Biden was running third at 9.7%, significantly trailing not only Trump but also his VP. Trailing Biden at 2.8% was Michelle Obama – the dream candidate for many Democrats who has repeatedly stated that she and Barack have done their term of national service.

As of the 24th of July, the odds have shifted. Trump still leads strongly at 56.4% (down from 61.3%), followed by Harris at 35.7% (up from 17.7%). Clearly, a Harris win will have different investment implications than a Trump win. We have already seen the post-debate Trump Trade, which was (and still is) damaging to the green agenda but positive for healthcare, fossil fuels and certain other industries. No Harris Hurray is yet apparent. That said, in a Reuters/Ipsos poll conducted earlier this week, has Harris leading Trump by 44% to 42%. At the very least, the race has tightened significantly.

What to watch for

• Biden was not polling well with Black, Latino and young people. Watch to see if Harris will be able to re-ignite and re-establish historical or better levels of support with these groups. Early indications are that she will.

• Women are a key constituency. Harris has a long record in favour of abortion. Biden’s firmly held Roman Catholic faith made him a less effective advocate for abortion rights. If abortion becomes a major issue, and it almost certainly will, it will help Harris.

• Non-college educated men who, historically, made up a solid Democratic constituency. As the Democratic party embraced some ‘culture’ issues, this group drifted away. Can Harris bring them back? Being a Black woman with a liberal voting record, the odds are not in her favour.

• Didn’t Kamala Harris’ flame burn out in 2020? She withdrew from the race even before the Iowa caucuses. She was a wooden, uninspiring, speaker. Like Biden and Trump, she can be given to speaking ‘word salad’. She can also speak in platitudes. However, in 2020, Harris’ strongest card was her record as a strong Attorney General in California. Unfortunately for her, the Democratic race in 2020 shifted to the left, leaving her adrift. In that race, Harris tried to shift left too – entirely unconvincingly. The point here is that her record as an Attorney General may be more compelling in 2024, running in a national race, not a Democratic primary, against a convicted felon. This is already manifesting itself in her early speeches.

• How will Trump respond to running against a younger Black woman? In the past, Trump – particularly when challenged which Hilary Clinton didn’t do effectively – lashes out.

The betting odds still favour Trump. But let’s not forget, odds are not a prediction. Odds reflect the weight of money, and there is still a long way to go to the 5th of November.  Investors believing in the green agenda (including ARP) have already suffered from the Trump Trade. At ARP, we think this has more or less runs its course. However, we do not see a Harris Hurray anytime soon.

We conclude that the election outcome is far from clear at this stage, but that market implications are significant. The outcome will likely have a dramatic impact on  equity returns, i.e., stakes are high. Stay tuned…!

Austin Erwin

25 July 2024