As the U.S. presidential election draws closer, investors are increasingly preparing for a potential Democratic sweep, according to a recent note from research firm Strategas.
They state that although the race is expected to be tight, Vice President Kamala Harris is emerging as a favorite, reshaping the dynamics of the election.
Strategas analysts note that Harris’s rise in the polls has been rapid, especially following her selection as the Democratic presidential candidate.
This shift has led to a dramatic drop in former President Donald Trump’s chances of winning, plummeting from 70% to 40% in the last three weeks, according to the firm.
"Vice President Harris has removed the acuity trade from the presidential election, consolidated the Democratic base, and injected new enthusiasm into the race," writes Strategas.
The firm outlines a three-part framework for understanding the current election landscape. Firstly, they note that the race is no longer an easy win for Trump, as Harris has turned it into a choice election, benefiting the incumbent party.
Secondly, they mention that the Misery Index—an economic indicator combining inflation and unemployment rates—remains just below the threshold where the incumbent party typically loses.
Finally, Strategas says that while Trump had been leading in swing states, Harris is gaining ground and "opening multiple paths" to the crucial 270 electoral votes.
The analysts also point out that despite historically favorable Republican math, there is growing speculation about a Democratic sweep.
They add that the upcoming Democratic Convention could further boost the Democrats, making Harris the electoral college frontrunner. Nevertheless, Strategas cautions that the race remains fluid and competitive, with both parties preparing for a close contest.