After the first debate, which we characterized as “chaotic, disorienting, and frankly depressing” in our recap article, expectations were exceptionally low heading into last night’s second and final debate. Thankfully, the debate was able to exceed those low expectations, with moderator Kristen Welker’s ability to mute the candidates’ mics playing a big role in promoting more substantive policy discussions.
Our top three trading takeaways from the debate follow:
1) Trump Was Notably More Restrained…And Dare We Say, “Presidential”
The consensus view among Trump advisers following the first debate was that he should dial back his aggressive interruptions, and it showed. At one point, Trump even complemented Welker, telling her that he approved of her performance after calling her “terrible and unfair” on twitter earlier in the week. The more civil debate, on both sides, allowed for more substantive policy debates around COVID-19, race relations, national security, and climate change.
2) COVID-19 vs. The Economy
For traders, the first topic was perhaps the most relevant. President Trump consistently characterized the US’s management of the pandemic as a balancing act between managing the virus and keeping the economy running. “We can’t close our nation,” Trump said. “We can’t lock ourselves up in a basement like Joe does.” By contrast, Biden implied that managing the pandemic should be the clear number one priority, and that the economy would not recover until COVID was under control, predicting a “Dark Winter” for this year.
Reading between the lines, a Trump victory in two weeks’ time would validate the President’s management of the pandemic and point to an earlier attempt to “return to normal” whereas a Biden victory would probably feature more restrictions on economic activity while the country prioritizes public health. We’ll never know for certain which strategy will ultimately prove “optimal,” but there’s no denying that Trump’s approach is more heavily “leveraged” to the development of an effective vaccine sooner rather than later; if we get that and a Trump presidency earlier in 2021, economic growth could accelerate rapidly as consumers open the floodgates after a year of pent-up demand.
3) It May Be Too Late to Shift the Race Meaningfully
Academic research suggests that, with just a handful of prominent exceptions (Nixon looking gaunt and sweaty in 1960 comes to mind), debates rarely move the race in any substantial, sustainable way. This phenomenon is likely to be especially true this year, with two candidates that have spent decades in the public eye and 50M votes already cast (fully 36% of the 138M votes cast in 2016); in other words, everyone is intimately familiar with Trump and Biden already, so there are far fewer undecided or swing voters than usual.
Combine that dynamic with the lack of major gaffes or “zingers” that will last beyond this news cycle, and the state of the race is likely to remain roughly the same: Biden has a commanding, but not insurmountable, lead in the polls. If Trump wants to win another term as President, he’ll have to pull another, bigger rabbit out of the hat than he did in 2016.
Markets seemingly agree with this take, with little in the way of major moves throughout the debate. Stay tuned next week for the final stretch of our election coverage, including articles on what’s priced in to markets, the final state of the race, and an hour-by-hour election “gameplan” with key states and markets to watch!
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