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U.S. President Donald Trump (Photo by Chip Somodevilla/Getty Images) Photo credit: Getty Images
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The bond market suggests that president Trump will win the 2020 presidential election.
Prices for corporate bonds point to a heating up of the U.S. economy early next year. And when it comes to who wins the White House, the strength of the economy always ranks high in the voting booth.
“Trump’s economy will reaccelerate in 2020,” says David Ranson, director of research at financial analytics firm HCWE & Co. “2019 will mislead some people into believing that Trump is on the edge.”
In other words, the sluggish economy this year could sucker some into thinking Trump will lose.
But like it or not such a thing probably won’t happen.
History’s guide
The matter comes down to something of a maxim for U.S. elections: It’s the economy. When the U.S. economy booms, when jobs are plentiful, and inflation is low, then the incumbent party is highly likely to win. At least that’s what history tells us.
Republican Ronald Reagan took over from Jimmy Carter in 1981 because the U.S. economy was a mess. A republican stayed in the White House until the mild recession in the early 1990s. In 1993 Democrat Bill Clinton took office for two terms. Then bursting of the dotcom bubble sent the Democrats packing and Republican George W. Bush took over for the new millennium until the subprime mortgage meltdown brought Democrat Barrack Obama to office in 2009.
In simple terms, if you believe that the economy will be weak in 2020, then you should expect a Democrat to take the White House. If you expect the economy to be strong, then you should expect Donald Trump to win a second term in office.
Bonds speak
Right now the bond market suggests that the U.S. economy will speed up early next year, says Ranson.
He bases that on changes in the extra amount that corporations pay to borrow money relative to how much the government pays. That so-called spread has plunged since the beginning of the year.
On January 4, corporations rated BBB (a.k.a. creditworthy corporations ) paid 2.06 percentage points more in interest per year than did the U.S. government, according to data from the Federal Reserve Bank of St. Louis. But that spread had dropped to 1.63 percentage points by May 23.
That spread compression indicates that investors are putting their money to work, and that also means that the economy will likely start to speed up again.
When? Just in time for the heat of the election campaign.
There’s normally a lag between the tightening of corporate bond spreads and changes in the economy of between six months and a year. So the change we’ve seen since the beginning of the year should manifest in a stronger economy starting between November and May.
That’s precisely the period when voters will be making their decisions about who they want in the White House. If the economy at that time is booming, then they’ll likely want that to continue.