In the early evening of Friday, October 7 David Fahrenthold of the Washington Post revealed a tape that showed Donald Trump, the Republican Party nominee for President of the United States, not just speaking vulgarly about women, but casually mentioning unwanted groping and further demeaning the woman he was about to meet. Over the next few hours the markets reacted, with Hillary Clinton, the Democratic Party nominee, moving from 81 percent to 87 percent to win the presidency. At the same time, Democrats moved from 62 percent to 68 percent to take the Senate, and 14 percent to 22 percent to take the House of Representatives. Control of the Supreme Court falls to whomever wins the presidency.
The upward movement for the presidency is not surprising, because Trump was way behind going into the second debate and needed a huge night; at the very best for Trump this is going to cost him the opportunity of the second debate. On the left side of the chart below I show the five “toss-up” states I have been following closely all year. Trump needs to win all five of these states (and one additional state) in order to in the election. He had been trending down in these five states going into the second debate, already behind in four of five states. The movement in these states was swift and dramatic. The only loose voters to gain at this point in the cycle are third party supporters and undecided voters. This is narrowing group tend to have demographics that match Democratic more than Republican voters. Thus, it was already an tough situation for Trump and losing the ability to hit Clinton hard in the second debate, closes one of the last opportunities he would have had to gain their votes.
Of course, cascading events, including a bad second debate, could lead to a landslide. States such as Arizona, Georgia have been non-negligible for Clinton all cycle are now in serious contention. States like Utah, Indiana, South Carolina and Missouri are now in play. If Clinton wins any of these states she has won in a landslide. If major resources are expended to these states it will likely focus on Arizona and Missouri where there are long-shot, but contested senatorial elections to consider. Otherwise, some resources could go to Georgia and South Carolina (along with Arizona), because Democrats believe they will be good investments for 2020 and beyond.
This election was never close, nor was it incredibly volatile. The polling data, both after the Republican Convention and right before the first debate, pointed to a small, but significant, lead for Clinton. I always expected Republican voters to coalesce around their nominee and likely voter screens to also help. I expected some Democrats to feel a little dejected by the constant patter of good news for Trump heading into the first debate and not respond to polls as usual. Thus, I was able to discount the polling bump that got Trump to about 3 percentage points behind going into the first debate (it also helped that Clinton has always been up at least 3.5 percentage points in 270 Electoral Votes).
But, market-based predictions also have an advantage over poll-based forecast: beyond speed, markets also can look toward idiosyncratic data. Poll-based models cannot include the massive Get-out-the-Vote advantage of Clinton over Trump. This advantage may get larger if the RNC actually pulls back funding for Trump. Poll-based models cannot include the knowledge that Trump was not preparing for the debates and would likely look bad for it. Or, that he was likely to have more scandals after demeaning (in no particular order): handicapped, Muslims, Mexicans, Latinos in general, Jews, women, African-Americans, veterans, etc.,
A quick look at the senate shows some negative coat-tails, concern that Republican candidates will suffer from their entanglement with Trump. If Trump loses in a landslide, many people may just vote straight ticket. Or, some Republicans may just not vote. Worse, some of the candidates, like the incumbent senator from New Hampshire are directly entangled with Trump.
The House is still a long-shot for the Democrats, but this may give them a few more seats than I would have predicted early this week.
OK – it is 7:50 PM ET and I am going to leave work for the night. Will be back bright and early. Tweet at me if anything happens!