Dewey Wins!

On Election Night, November 3rd, 1948, New York Governor Thomas E. Dewey faced off against incumbent President Harry Truman. Now, Truman had never actually been elected President, but rather had ascended to the role of President when 4x winner Franklin Roosevelt had passed away in early 1945. In fact, Truman was not Roosevelt’s first Vice-President, nor was he even his second. Roosevelt’s first VP – John Nance Garner III – turned against Roosevelt in 1940 when Roosevelt refused to respect the “tradition” of only seeking two terms as President (Roosevelt would eventually seek four). Garner was replaced by Henry Wallace, who served from 1940 to 1944. However, when Roosevelt decided to “double-down” and seek an unprecedented fourth term (although, we suppose the third term was unprecedented, so imagine a word more “holy smokes, did you see what he just did?” than “unprecedented”), Wallace was replaced by Truman, largely because Roosevelt’s failing health was well known and party elders did not like the cut of Wallace’s jib (i.e. they didn’t want to live in a world in which Wallace would be President).

So, 82 days into the job as Vice-President, Truman was elevated to President of the United States, where he would serve for almost four years until the election of 1948. Dewey, for his part, had run against Roosevelt and Truman in 1944, losing badly, but in the lead up to the 1948 Election, things looked a lot rosier for Dewey. The Democratic party was sharply divided, and polls suggested that Dewey would win the election by a fairly comfortable margin. In fact, The New York Times felt the election was almost certain to go for Dewey, while Life Magazine had run a cover story a few months before the election declaring Dewey “The Next President of the United States.”

But a funny thing happened – Truman won rather easily, amassing nearly three million more votes than Dewey and winning the Electoral College by nearly a 2:1 margin. Famously, a couple of days after Election Day, Truman posed with an issue of the Chicago Tribune (then the Daily Tribune), which declared “Dewey Defeats Truman.” So, what went wrong for Dewey? The biggest issue was – polling mistakes compounded by a late surge by Truman.

?Polling was a relatively new science at the time with many of the polls conducted via the telephone. While the telephone had been invented in the late 1800s, it was not yet ubiquitous across the United States and was still largely under the purview of the well-off. Thus, polls tended to be skewed to a certain demographic - a demographic that tended to favor Dewey. Further, most polls were conducted weeks in advance of the election, which failed to pick up a massive barnstorming effort by Truman in the closing weeks of the campaign to turn out the Democratic vote.

?Who’s the Most Motivated Voter?

We would note that since “Dewey Defeats Truman”, we have had no less than six Presidential Elections that confounded pundits on Election Day:

·??????? 1960 – Polls were very close heading into Election Day; however, John Kennedy won the Electoral College rather easily.

·??????? 1976 – Some polls had incumbent President Gerald Ford ahead going into Election Day, but Jimmy Carter went on to win the popular vote and Electoral College by narrow margins.

·??????? 2000 – Polls suggested Al Gore would defeat George W. Bush; however, the Election ended as essentially a dead heat and some problems with Florida’s ballots and voting machines swung the election to Bush.

·??????? 2012 - Polls suggested a close race with some even pointing to a Mitt Romney victory. While polls were correct in assessing Obama’s loss of support amongst most groups, turnout amongst African Americans (which had already set records in 2008) surged even higher and Obama won the election rather easily.

·??????? 2016 – Polls pointed to a rather easy victory for Hillary Clinton; however, a late surge by Trump and a general lack of enthusiasm for Clinton led to a narrow Trump victory, despite his losing the popular vote by more than two million votes.

·??????? 2020 – Polls suggested that Joe Biden would win most of the swing states by rather wide margins; however, most of the swing states were decided by less than 1%, creating some uncertainty in the days immediately after Election Day.

So, where do we sit in 2024? Most polls are very close, especially in the seven “swingiest states” – PA, MI, WI, NC, AZ, NV, and GA – and the popular narrative is – since polls got Trump support wrong in 2016 and 2020, then polls that are this close likely suggest that he is winning. While this may be the case, we would note the following:

·??????? The Dobbs decision, which overturned Roe, has injected a wildcard into this race that did not exist in 2016 or 2020;

·??????? Polls in the 2022 midterms suggested that Republicans would sweep to a large House majority and a narrow Senate majority – instead, the Republicans barely won control of the House, while the Senate remained under Democrat control. In other words, the same polls that seemed to overrate the Democrat’s chances in 16 and 20, overrated the Republican’s chances in 2022. Why? There are probably several reasons, but Dobbs was probably the biggest;

·??????? Find the most motivated group and you generally find the winner: While elections have lots of moving pieces, a good rule of thumb is – if you find the group or subgroup that is the most motivated in an election, you probably are going to find the winner of that election. To wit:

o?? In 2008, the most motivated group were African Americans and Barrack Obama won the election rather easily. This was not the only factor in Obama’s win, but a big one nonetheless;

o?? In 2012, turnout amongst African Americans (which had already set records in 2008) surged even higher and Obama won the election rather easily;

o?? In 2016, it was non-college educated whites as well as those who simply did not like the Clintons;

o?? In 2020, it was the never-Trump Republicans and African Americans, especially African American women;

o?? In 2024, it was – well, we don’t know yet, but if we had to guess, we would suggest that the tail of Dobbs will be long and turnout among women could be a decisive factor in the election.

Bottom Line on Election: Regardless of how you hope this election goes, nothing is etched in stone and basing conclusions on 2016 and 2020 is spurious in our view. If we were forced to venture a guess, we would say that Harris wins the three rustbelt states – PA, MI, and WI – while Trump sweeps the other four swing states – AZ, GA, NV, and NC – but that lone electoral vote in Nebraska, which we have discussed previously, pushes Harris over the line 270-268.

Bottom Line for Markets: Looking three months beyond the election, we do not believe the ultimate winner will matter all that much to the performance of markets broadly. While stocks have historically done better under Democratic presidents than under Republican presidents (see chart below), our view remains that a strong economy, which feeds into earnings growth, tends to trump (pun partially intended) whomever is in the White House.?

?The U.S. economy remains resilient and thus our outlook for 2025 is generally good; although, as we wrote a few weeks back , we do continue to have concerns about the fiscal situation.

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