The big shift in betting odds in Polymarket has people intrigued about what is happening under the surface that has some people more-confident that Trump will win the Presidency. He’s at 61% now and that’s spawned all kinds of conspiracy theories as the polls haven’t moved much.
But I’m less interested in the Presidency for markets than I am for a sweep. I’ve long assumed the Republicans would win the Senate and that hasn’t changed, so the chances of a Democrat sweep were low. Given the popular vote totals, I’ve also leaned towards a Democratic win in the House, though that’s far from certain.
What I find more-interesting in recent days isn’t the Trump rise but that betting sites now how Republicans as a slight favorite for the House. Two sites now have Republicans at 11/10 and Democrats at 8/11 (though another still has the Dems at 4/5).
Yesterday, I shared a useful Deutsche Bank matrix on election outcomes for the larger macro picture. As they highlighted, much of these are debatable.
Back in June, I highlighted some clearer Republican election trades and I want to review nine of them to get a sense of what they’re saying:
1) Short Nike (NKE) on China trade turmoil and tariffs. Nike has steadily climbed since then, which is the opposite of what you would expect on a Trump/Republican win, but I’m not sure it’s a good read as they fired the CEO and have plenty of turmoil.
2) Short Starbucks (SPUX) on the same China themes. SBUX is much stronger than it was in June but they also dumped the CEO. Share have almost traded straight sideways since the CEO move though, which underperformed the market. That said, I’m not sure I’d take any of this as a signal.
3) Buy Albertsons as Republicans less likely to block Kroger takeover. ACI is trading at $18.32 compared to $19.74 in June so this one isn’t going in the way of Trump, though there are some lawsuits around it.
4) Buy Amazon (AMZN) because efforts to break it up will be dropped. Shares are flat compared to June and flat recently.
5) Buy Apple (AAPL) as it will no longer be in FTC cross-hairs. Apple shares climbed in early July but are flat lately and have recently underperformed the market.
6) Buy media companies that could be taken over on the idea they won’t be blocked. I speculated that Sinclair (SBGI) would be a good way to play this theme and it’s rallied from $13 to $17.40 in the past five weeks. This is the first real sign of a Trump/Republican trade working.
7) Buy Johnson & Johnson as lawsuits will be tapered. Shares of JNJ have been flat since July despite a stronger stock market.
8) Buy New Fortress Energy (NFE) on LNG exports resuming. I thought this was a clear case but this stock has been a dog. I ran up in July as Biden was circling the drain but it’s down from $26 at the July peak to $9 now and has shown no life recently including at 5% drop today. The company had a profit warning in August, which is a big part of the problem.
9) Buy Cheniere (LNG) on the same theme. Cheniere is flat since mid-July and fell in the last week even as Trump’s odds improved.
Conclusion:
I think there is something real to the boost in Trump/Republican odds but this set of trades shows how hard it is to trade on the theme of politics. I still they’re they’re ideas and themes you want to watch for the next three weeks but they undermine what’s happening in the betting markets.
As always, my trade around politics is to buy after any big election, as the sun always rises the next morning despite the angst. That said, the US market isn’t showing any angst at the moment so that’s a hard trade to make but I still think it’s the right one and a Republicans sweep would be great for the vast majority of the US stock market so long as someone could restrain Trump’s worst instincts on tariffs.