Business Brief: Debate winner? Ask the markets

The first and maybe only debate between former president Donald Trump and Vice-President Kamala Harris is over and, as with any political showdown, the question immediately turned to who won. The majority of pundits and pollsters crowned Harris the winner. But would they bet on it? We’ll dig into how predictive markets are letting people wager on the next White House resident and what markets are saying about this election. But first …

In the news

Clipping labour’s wings: With Air Canada pilots on the verge of a strike or lockout, will the federal government step in to avert a stoppage? Business groups are pushing for Ottawa to immediately intervene but they shouldn’t hold their breath, Eric Atkins and Marieke Walsh write.

Penalty pileup: U.S. regulators slapped Toronto-Dominion Bank with yet another fine, this one over erroneous financial information it gave consumer reporting agencies about its American clients. The US$28-million fine pales next to the potential US$3-billion anti-money-laundering penalty that the bank faces but regulators gave TD a tongue-lashing.

Wicked weather: A severe hailstorm that pelted Calgary in August helped make this summer one of the most expensive on record for the insurance industry and could cause premiums to rise across the country. The cost of insuring weather-related events this summer reached $3.6-billion, more than in all of 2023.

Happening today:

• Statistics Canada releases the latest picture of the financial health of consumers, including the household-debt ratio
• The agency will also provide an update on the home-building rush, or lack thereof, with building permits for July
• Earnings include Adobe, Transat AT and Empire Co.

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In focus

Taking bets on the presidency

There was a moment during Tuesday night’s presidential debate, with Harris hammering, goading and toying with her rival, that the bottom appeared to fall out beneath Trump. It came at about the 25-minute mark, as the two scrapped over abortion and Trump’s lie that Democrats support executing babies.

That was the moment when people betting on Trump’s chance of victory come Nov. 5 using Polymarket, an online prediction market, seemed to throw in the towel, with the chance of Trump winning dropping from 52 per cent to 49 per cent in minutes.

What are prediction markets?

Prediction markets aren’t new. The stock market itself is really just one big prediction market, with investors betting on the future performance of companies. But with this election, a new wave of prediction markets are having a moment, allowing people to wager on the outcome of events.

Polymarket, for instance, is a blockchain-based market on which bettors using cryptocurrency purchase a share for a particular outcome in an event, like the election. As of Wednesday, a total of US$871.9-million worth of wagers had been placed on the election outcome.

All of that came from outside the U.S., mind you, since Polymarket bans American users. U.S. regulators remain deeply uneasy with the idea that political betting could undermine confidence in elections. But betting on touchdowns in sports, that’s fine.

The Election Betting Odds tracker website, which consolidates wagers from four different prediction markets, now puts the odds of Harris winning the presidency at 51.3 per cent, swapping places with where Trump was days ago.

Are prediction markets better than polls?

The jury is still out on that. Prediction markets were accurate in the past two presidential elections, and bettors called President Joe Biden’s withdrawal from the race weeks in advance of it happening. And advocates like to point out that with prediction markets versus surveys, people are putting actual money on the line.

Still, prediction markets simply haven’t been around long enough to prove their effectiveness.

Trump Inc.

Away from the prediction markets, traditional markets also showed Trump flailing from the debate. Shares in Trump Media & Technology Group, the Trump-controlled company that owns Trump’s own Truth Social site, plunged 14 per cent when markets opened on Wednesday and are now nearly 80 per cent lower than their March peak.

Think bigger

Ok, but Trump Media is one crazily concentrated stock with Trump owning the majority of shares. What about the stock market as a whole? There’s evidence that markets can do a pretty good job at predicting new presidents.

Last month, Adam Turnquist, chief technical strategist at LPL Financial, a San Diego financial advisory firm, crunched the numbers on stock-market performance leading up to every presidential election since 1928. A pattern emerged. If the S&P 500 was positive in the three months leading up to election day, the incumbent party stayed in control 80 per cent of the time. When the index was negative in that three-month window, the incumbents lost eight out of nine times. “When combined, the market performance has predicted 20 of the last 24 elections,” he wrote.

Aug. 5 was the start date for this election’s stock-market prediction window. For what it’s worth at this point, the S&P 500 is up about 7 per cent, though Aug. 5 also came after days of panic selling. The index is still down 2 per cent below its historic high in July.

Swift boats once sank John Kerry’s presidential run. Will the Swift boat sink Trump?

Now, what happens when you take one still razor-thin election and toss in a multibillion- dollar economic and social-media juggernaut. Minutes after the debate wrapped up, childless cat lady Taylor Swift took to Instagram and told her 283 million followers that she was endorsing Harris for president, with a particular focus on encouraging her American fans to register to vote.

Swiftonomics is a potent economic force, with Swift’s The Eras Tour credited with nudging up gross domestic product in a number of countries as it made its way around the globe. Now, that momentum is going behind Harris. As of Wednesday mid-morning, more than 300,000 web users visited Vote.gov via Swift’s URL, the organization told The Globe and Mail.

So far, there doesn’t appear to be a prediction market allowing folks to bet on Swift’s impact on the election. Give it time.

Charted

In August, Americans got more relief from inflation, and the U.S. Federal Reserve got another reason to begin cutting interest rates next week, but one very big issue remains – the rising cost of housing. The overall consumer price index increased 2.5 per cent, the slowest annual pace since February, 2021, but shelter prices picked up again, rising 5.2 per cent. If the central bank is looking for an excuse to go slow with rate cuts, that could be it.

Morning markets

Global markets were on the rise, buoyed by optimism of a U.S. Federal Reserve interest rate cut next week and a European Central Bank rate reduction later this morning. Wall Street futures and TSX futures pointed higher.

Overseas, the pan-European STOXX 600 was up 0.94 per cent in morning trading. Britain’s FTSE 100 rose 0.76 per cent, Germany’s DAX gained 1.13 per cent and France’s CAC 40 advanced 0.79 per cent.

In Asia, Japan’s Nikkei closed 3.41 per cent higher, while Hong Kong’s Hang Seng gained 0.77 per cent.

The Canadian dollar traded at 73.69 U.S. cents.