Richard Harris

Opinion | Amid all the US election noise, investors need to keep calm

In a presidential race that is still too close to call, any investment positioning will be mere speculation

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Voters line up to apply for mail-in or absentee ballots outside the Allegheny County Office Building, in Pittsburgh, Pennsylvania, on October 29. Photo: AFP

Richard Harris

Published: 8:30pm, 31 Oct 2024

Even with deadly wars and concerns about artificial intelligence and inflation, the sword of Damocles that seems to hang over everything this year is the US presidential election. We are days away from that “pivot event”, yet the race between Vice-President Kamala Harris and former president Donald Trump is still balanced on a knife-edge.

A pivot event occurs when a material outcome is expected upon the release of news at a known point in time. For the US election, that moment comes when mainstream US news outlets declare the results (formal concessions now seem outmoded). In investment, a pivot event might be an important set of earnings results or a regulatory decision about a big acquisition.

As the pivot point approaches, the wisdom of the crowd often naturally leans towards the favoured side. Markets get an inkling of where the situation is headed, news might leak into the markets or indirect indicators point towards the eventual outcome. The invisible hand will move prices according to the growing probability of the outcome.

When forecast probabilities narrow rapidly as we approach the pivotal event, we reach what I call the zone of realisation. This can happen sometime before the event, such that the outcome may be reflected in prices by the time the news is released.

In this election, the zone of realisation is very short indeed because the Democratic and Republican parties are running neck and neck. Trump has an advantage because the electoral college system favours his party.

And to the extent that a market narrative or the wisdom of the crowd can be gleaned from the frequency of searches on Google Trends, Trump’s recent political stunt, serving fries at McDonald’s, appears to have won him a significant amount of attention. In comparison, Harris seems to have struggled to keep up with Trump’s publicity mill since she was confirmed as the Democratic Party’s nominee.