On the First Presidential Debate
Neither candidate made much of a difference in last night’s debate. But Clinton came in as the front-runner, so even if Trump fought her to a draw she wins. S&P 500 futures declared Clinton the winner by rallying 16 handles during the debate; they’ve been closely correlated to her market-implied probability of victory since the top in mid-August. This election is far from over, and our election model still gives Trump a strong edge. If he wins, we think it will be a risk-off event for markets, which would have to build in a “Trump risk premium” based on extreme policy uncertainty. The severity will depend on whether it is a surprise, and whether Trump’s victory is decisive. The worst outcomes are black swans in which a close election is thrown to the House of Representatives, either by a third-party win in at least one state, or “faithless electors” who abstain from the Electoral College vote – dragging the election’s outcome into next year, and into constitutional crisis.