Stocktake: A Biden victory is not fully priced into markets

Joe Biden has been well ahead of Donald Trump in the polls for some time. Does that mean a blue wave is already priced in?

Maybe not. Betting markets tightened last week; Biden is the bookies’ favourite, but it’s not seen as a done deal. In contrast, the Economist’s model gives Biden a 93 per cent chance of winning the US presidential election: the model used by Nate Silver’s FiveThirtyEight website is similarly emphatic.

Modellers are taking their lead from Biden's sizeable and stable lead in the polls. In contrast, those betting on the outcome seem suspicious of the polls, with much commentary focusing on the fact that Hillary Clinton had a similarly large lead in 2016.

Stocktake is inclined to side with the models rather than the betting markets. The polls in 2020 are different to 2016's in some key respects and the lessons of 2016 seem to have been "over-learned", as Bloomberg's John Authers put it recently.

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A blue wave and substantial fiscal stimulus looks increasingly likely, but this doesn’t appear to be fully priced in just yet.