Five X-Factors That Could Upend the Election
🔮 INSIDE: Texas Turns Blue • Trump in Jail • War • Recession • More Candidate Swaps
On Friday, Kamala Harris took the lead over Trump in Polymarket's 2024 general election odds and now leads by her widest margin yet of six points.
What Changed: Harris’ lead solidified over the weekend with a batch of polling that improved her chances in the northern swing states of Pennsylvania, Michigan, and Wisconsin. The other three swing states of Arizona, Nevada, and Georgia are closer.
It's Still Early. This election has already made history with Biden’s post-primary withdrawal. Could we do it again? Today's newsletter looks at the Polymarket odds for five low probability but high impact events that could shift the course of the election.
X-Factor 1: Rogan & RFK put Texas in Play
This week, Independent presidential candidate RFK Jr. announced he had obtained ballot access in Texas, home to top podcaster Joe Rogan. Rogan has featured RFK on his show several times, and recently spoke glowingly of the candidate, although Rogan later said it was not an official endorsement.
One theory that was trending over the weekend is that Kennedy could be drawing more votes away from Trump now that Biden is out of the race. And if you squint at the 2020 results and current poll numbers, it’s possible to see a world where Harris and/or RFK overperform their polls in Texas and throw the state’s 40 electoral votes to the Dems.
But Polymarket’s odds for Texas have barely budged, staying in the 88-90% range where they have been for most of the race. So while Democrats have always salivated about flipping Texas in a wave election, it does not seem like RFK’s ballot access or Rogan’s quasi-endorsement is moving the needle.
X-Factor 2: Trump in Jail
Trump’s sentencing in his New York hush money trial is set for September 18 - 45 days before the election. Polymarket has several markets on how the sentencing will play out:
Sentenced to Probation: 63%
Over $1m fine: 8%
Any Prison Sentence (could be appealed): 20%
Trump in Prison before Election Day: 5%
So while there’s a non-zero chance of Trump spending election day in jail, it’s much more likely that he will get probation. This could entail mandatory meetings with a probation officer, or other restrictions on his activities in the final days of the campaign, violations of which could send him to prison.
X-Factor 3: War
Iran. The US is embroiled in multiple Middle East conflicts. It’s backstopping Israel in Gaza, providing air defense from Iranian strikes, defending its own bases in Iraq and Syria, and striking at the Houthis in Yemen in hopes of ending their Red Sea blockade.
But the main goal of the Biden administration is to avoid an escalation that could pull the US into wider war. Polymarket shows a 9% chance that the US strikes Iran directly by the end of August.
While there is currently no market for Iran-US conflict beyond August 31, a 9% chance of conflict by this time implies an even higher chance before election day given the larger time window. A direct US-Iran war would likely be wider in scope than the current conflicts due to Iran’s ability to disrupt oil shipments, its nuclear program, and military capacity.
China / Taiwan. Polymarket odds put a 7% chance on a Chinese invasion of Taiwan by year’s end. This market was as high as 21% earlier in the year. Given President Biden’s numerous pledges to defend Taiwan, a Chinese attack on Taiwan could put the US and China into a direct conflict which would almost certainly become a focus of the election.
X-Factor 4: Recession
A standard-issue economic recession, where unemployment ticks up and GDP growth slows could easily tip the balance towards Trump. Recession is a reliable indicator that an incumbent party will struggle. Currently, Polymarket odds see a 13% chance of recession in 2024, although this was much higher during the market disruptions a week ago.
X-Factor 5: More Candidate #Hotswaps?
Could the media honeymoon for Kamala Harris after Biden’s withdrawal make candidate replacements more common in the future - a convention bounce on steroids? Could this happen even within the same election cycle? Here’s what the odds say:
Odds Biden Doesn’t Finish his Term: 19%
Bottom Line
Expect the Unexpected. To get the odds that at least one of two uncorrelated events will occur, you add their probabilities. For example, the odds that you will draw a spade or a heart from a deck of cards are 50%: 25% chance of a spade plus 25% chance of a heart.
If you add up the probabilities for all the longshot events in this article, it’s better than 50/50 that one of them will occur. Math like this suggests that this year an October surprise should not be that surprising; the larger the menu of low probability events becomes, the more likely it is that one will occur.
Watch the Correlations. But world events do not unfold neatly like picking the next card from a deck. They impact each other in complex ways.
Maybe a weakened Biden not finishing his term makes it more likely that China will escalate? Maybe a recession puts pressure on the Democrats to shake up the race even more?
There are endless scenarios, and they are already baked into today’s odds, but not tomorrow’s. This is why there are “catastrophic events” markets on Polymarket, and why this newsletter exists: because tracking how prediction markets react to breaking news is the best tool we have to untangle this web of correlations and dependencies that shape the future.
Disclaimer
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