Betting vs. Polling
Something peculiar is going on in the elections. The polling shows that Harris is ahead of Trump by 1.5 percent, while the betting odds have Trump in favor by double that margin. What is going on here? (Figures 1-2).
Figure 1: Betting
Source: Polymarket
Figure 2: Polling
Source: 538
To a degree, comparing polling and betting is like the nuances between the BLS Household and Establishment surveys. Those being polled could be making a bet on the candidate they’re being polled about. A polling station may not call those who are betting.
There is an overlap between pollsters and betters, which means that the odds of winning and losing may need a BLS-style benchmark revision.
Yet, those trading the elections watch polls and bet to position themselves in the Trump or Harris trade. Betting odds correlate positively with the Trump trade, and the polls correlate positively with the Harris trade (Figure 3-4).
Figure 3-4: Trump Trade and betting, Harris Trade and polling
Source: Realclear, Polymarket
Historically, betting odds have been a better predictor of the election's winner than polls. The candidate favorite in the odds has won 27 times, 77% of the last 35 elections (Figure 5). In 2016 and 2020, the betting odds determined the outcome and contrasted the polls.
Figure 5: Odds better predictor of the winner
Source: odds trader
Thus, with the odds right now in favor of Trump, his trade should be the winning strategy. Yet, this election is a once-in-a-generation event, especially as an “alternative candidate” who has surged in the polls and the odds.
While Trump may (or may not) win, the odds point to the increased possibility of a blue sweep of Congress. The total return of the Strategas selected stocks basket that could ‘benefit’ from a blue sweep has been the same to a touch better than that of the stocks basket that presents the red sweep (Figure 6-7).
The macro and policy outcomes could be significant if the odds correctly predict the election and the blue or red basket. On the eve of Harris and Powell's make-or-break speeches, the market is pricing the outcome as tight as a tick. If Trump is a potential winner in a blue-swept Congress, fiscal spending could robustly explode, funded by tariffs and rate cuts.
Figure 6-7: Red and Blue sweep vs. Odds
Source: Polymarket, Strategas