In the financial world, investors and Wall Street analysts deploy two main methods in forecasting price trends for stocks, bonds, and commodities: "fundamental" and "technical" models. The fundamental approach relies on bedrock, underlying business factors that traditionally swell or deflate values on the public exchanges. For equities, those basics include projections for sales growth based on, say, forecasting whether a Nike, Apple, or McDonald’s is gaining or losing customers versus rivals, and estimating where their "total addressable markets" (TAMs) will go over the next five or 10 years. Other widely used fundamental yardsticks include measuring the "moat," or durable competitive advantage an enterprise enjoys because of its powerful brands (think LVMH) or irreplaceable infrastructure (America's freight railroads) that should ensure rich margins going forward, and what share of cash flow from operations an enterprise can channel into profit-making new projects, versus the "maintenance" capital expenditures required to just keep its existing plants and fabs in top working order.
By comparison, the technical side looks not at this essential financial information that should, and eventually does, drive prices, but the past patterns in those prices that repeat over time, and may provide a road map to where they're headed. The technicians regularly study charts showing price movements over many years to identify "resistance levels" or "head and shoulders" formations that signal moments to buy or sell.
For example, a company may post a string of great earnings, offer a low P/E compared to its peers, enjoy tailwinds from a thriving industry—and yet its stock's stuck in a rut. So on the fundamentals, it looks like a bargain. But the charts could alert a technician that when this name flatlines, its shares usually suffer a funk, and tank in the days or weeks ahead. The company's promising outlook and cheap valuation lure the fundamental contingent to buy; the scary past price action pushes the technical crowd to sell or short. Put simply, it's an investing scenario in which the fundamentals and the technicals contradict one another.
In presidential elections, fundamental and technical analysis are also the two leading methods for handicapping the outcome. The fundamentals encapsulate the type of campaign, from radical to centrist, that the candidates run, the economic circumstances at election time, information on the dueling ground games, and how the contestants impress voters on charisma and credibility. The technicals divide into two categories: the polls, and the political prediction or betting markets. In the financial domain, the two measures, though usually in harmony, are often at odds. But in presidential elections, the pair are almost always aligned—for a simple reason: Over many decades, the candidate that reigns on the fundamentals almost invariably leads big in the polls and dominates the betting odds. The fundamentals historically drive the technicals, and the candidates' strategies and personas exercise a strong gravitational pull on the voter surveys and wagering prices.
But in the 2024 race for the White House, the fundamentals and technicals are thoroughly out of whack. "We've never seen a disconnect like this in any modern presidential election, or maybe any presidential race ever," declares Thomas Miller, a data scientist at Northwestern University. Miller relies on the technicals; he bases his forecasts on the betting, or predictions markets, yardsticks he rates as far more reliable, and current, than the polls. But he's still astounded at what his numbers indicate versus where the on-the-ground messaging shows they should be—namely, why the fundamentals and technicals are telling much wildly divergent stories.
His conclusion: Harris is taking the course that in the past almost always wins. So the fundamentals show she should cruise to victory on Nov. 5. Trump's picked a path that almost always loses. Yet on the technicals, he's way ahead.
That scenario's baffling, says Miller, because the VP is adopting almost all the ingredients for success. "Her approach is upbeat, optimistic, and inclusive. She's offering unity, not division," notes the committed technician. "The vice president is also positioning herself center-left on the political spectrum. Traditionally, those two strategies have always proven the winners." By contrast, Miller sees Trump selling the excessively negative view that America faces a dire future under any leader but himself, and he portrays our current economic condition as apocalyptic, while the actual data on growth and employment are pretty positive. "The Republican message has been a dark and anti-immigrant message, laced with disparaging comments about Harris," says Miller. "Trump vows to take revenge against his opponents if he wins the 2024 election." For Miller, Trump is running on a far-right extremist agenda. A stance that far from the mainstream, says Miller, has always spelled doom. As the prime example, he cites the Johnson-Goldwater race of 1964, where the Republican ran as a radical conservative, and the incumbent advocated the type of moderately liberal policies that Harris supports today. Goldwater, notes Miller, suffered the worst Republican loss in the last 60 years, collecting just 52 electoral votes (EVs).
Though a technician, Miller greatly admires the work of arguably America's leading forecaster in the fundamental camp. Allan Lichtman, a professor at American University, has called nine out of the last 10 presidential races, only missing on the Bush-Gore squeaker in 2000 (which he maintains Gore lost only because votes were improperly counted in Florida, the state that decided the race by a couple of hundred ballots). Lichtman uses a system he calls "the 13 keys to the White House." For example, the incumbent candidates checks the right boxes if they don't face primary challenges, scored a major change in domestic policy, registered a big success on the international stage, benefited from an economy not in recession at election time, and exhibited big-time charisma.
If an incumbent candidate captures seven or more keys, they're destined for victory. The challenger must garner at least six to prevail. Lichtman awards Trump just four keys, including ones for Harris's lack of magnetism and a big foreign policy failure, specifically the warfare engulfing Israel, Lebanon, and Iran. Lichtman is unfazed by the super-tight polling, as well as heavy betting odds in Trump's favor. He's sticking to his prediction that Harris will win. He rates both the polls and technical measures as highly unreliable. In interviews, he's cautioned that the surveys hugely underestimated the Democratic vote in the 2022 midterms, and that the polls and betting sites are far underestimating the support Harris will command on Election Day.
What explains this apparent gulf between the technicals and fundamentals? In part, says Miller, it's simply a departure from the normal national mindset where voters prefer relatively centrist, dignified candidates offering an uplifting vision, a sign that America's now a bitterly divided nation. But he spotlights another reason: the way Lichtman defines the short-term economic condition. Miller says that while the macro numbers look good, Americans don't feel good, so the situation that usually helps the party in the White House is now doing just the opposite, imposing a heavy drag for the VP. "The message from the Democratic Party is that GDP is growing strongly, unemployment is low, inflation is coming down," he declares. "They spotlight all these good indices. But most people don't think about GDP or that prices aren't rising as fast as before. They think about how they have to work two jobs to get by, or that their grocery bills jumped hugely under Biden, and that they have no savings and because of high interest rates, can't afford a mortgage to buy a first home or trade in the old car for a new one." So "not in recession" gets swamped by the dollar squeeze in their own lives.
"If nothing substantial changes in the race, Trump will win," Miller told me. "That will only change if there's a massive turnaround. I'm not happy about it. I'd like to see a turnaround. The country would be better served. But I'm a data scientist. My forecast has to be based on the data. Right now, it looks like a Republican victory and maybe a strong one."
On Oct. 28, however, the PredictIt prices narrowed a bit in Harris's direction. The reason may be the overheated rhetoric at the six-hour Trump rally at Manhattan's Madison Square Garden the previous evening, where a comedian onstage called Puerto Rico a "floating sea of garbage," a crack that could seriously undermine Trump's so far successful outreach to Hispanic voters. As Miller notes, that gift to Harris may be too little, too late, given that just seven days are left for voters to change their minds. Still, this race has been a roller-coaster ride where each candidate has careened from the dumps to the heights, only to crash again. The fundamentals that almost invariably decide our presidential races still favor Harris. An outstanding predictor, Allan Lichtman, who's almost always right, is lashed to the fundamentals. Another great forecaster, who admires Lichtman's work, Thomas Miller, is sticking with the technicals. We won't know until late on Nov. 5 at the earliest which of the two models that almost always agree—and this time stand in stark conflict—will prove correct.
This story was originally featured on Fortune.com
