JPMorgan's quant guru lays out 2 reasons he sees Trump's reelection odds rising — and urges investors to position accordingly

• JPMorgan said it sees President Donald Trump's chance of being reelected rising and advised clients on Monday to position accordingly.
• Investors can expect a 5- to 10-point shift in polling from Democrats to Republicans if people begin to perceive pro-Democratic demonstrations as violent, said Marko Kolanovic, the head of macro quantitative and derivatives research at JPMorgan.
• The "liberal trend of 'cancel culture'" is likely behind many Trump supporters lying in polls, Kolanovic said, adding that the effect could artificially skew polls by up to 6% in favor of Biden.
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With 63 days left until the US presidential election, JPMorgan is advising clients to prepare for a closer race than some expect.

President Donald Trump trailed Joe Biden, the Democratic presidential nominee, by as much as 25 points earlier in August, but his chance of being reelected crept higher following last week's Republican National Convention. The shift left investors fearing that pricing in a Biden administration could have been premature.

In a note on Monday, Marko Kolanovic, the head of macro quantitative and derivatives research at JPMorgan, tied Trump's slump and subsequent resurgence to recent protests and a widespread bias in polls.

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Academic research tracking peaceful and violent demonstrations' effects on elections from 1960 to 1972 indicated that peaceful, pro-Democratic demonstrations aided Democrats by 2% to 3%, while violent pro-Democratic protests aided Republicans by 2% to 8%, the bank said.

Should the overall perception of current protests turn from peaceful to violent, investors can plan for a 5- to 10-point shift in polling from Democrats to Republicans, Kolanovic said.

"The impact of protest violence on the 2020 elections may be even larger," the strategist wrote, citing "the broad online availability of violent footage (everybody can record and share in real time), but also the ability to influence social media to amplify this message."

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Separately, a disparity in voters' honesty in polls could be painting a disingenuous picture of Trump's reelection odds, the bank said. In a recent survey by CloudResearch, roughly 10% of Trump supporters said they were unlikely to be honest in phone polls, while just 5% of Biden supporters said as much.

Kolanovic said the trend shouldn't surprise investors, "given the liberal trend of 'cancel culture.'"

"We find that this 'cancel culture' effect could artificially skew polls in favor of Biden by 5-6%," he wrote.

Unless Democrats change their stance on demonstrations, Kolanovic sees momentum for Trump in polls. That could boost companies that benefited most from Trump's policies, the bank said.

Most investors remain positioned for a Biden win, so clients should review their balance of momentum versus value, cyclical stocks versus tech names, and exposure to ESG trends before the candidates' polling gap closes further, Kolanovic added.

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