Pennsylvania: The Keystone State in the 2024 U.S. Presidential Race

The U.S. election is fast approaching, and hopes for a clear-cut winner seem to be fading. Whoever wins, the result is likely to be contested, and it’s increasingly difficult to see a decisive outcome. The election will almost certainly be decided in a handful of swing states and perhaps the most important of those is Pennsylvania.

As Katty Kay and Anthony Scaramucci discuss in their podcast The Rest is Politics, Pennsylvania is effectively split into three distinct parts: The city of Pittsburgh in the West, Philadelphia in the East, and Alabama squished in the middle. This diverse makeup has always made it a hotly contested state in elections and 2024 will be no different.

While Pennsylvania hasn’t seen the same level of immigration as other U.S. states, there have been subtle shifts since the last election. These could be critical, particularly in the suburbs, where both candidates are working hard to sway voters. Despite the Harris campaign leading in the polls, Trump has been closing the gap steadily since the end of September and Pennsylvania is now a true toss-up.

Economic Conditions and Sentiment

Economically, the state has been adding jobs in 2024, after a lull in 2023. Unemployment is holding below 4%, which should theoretically be good news for Harris. But beneath the surface, there are signs of discontent. The Conference Board’s consumer confidence index has plummeted in the second half of this year, suggesting that even though jobs are being created, Pennsylvanians are not feeling optimistic about their financial situations. Inflation, wage stagnation, and rising costs of living are all weighing heavily on voters’ minds. And unhappy voters tend to vote for change—particularly when the incumbent is on the ballot.

Pennsylvania: A Microcosm of U.S. Politics

Pennsylvania’s political landscape is as complex as its geography. The state’s 19 electoral votes are vital to either candidate’s path to victory and the margins are always razor-thin. Trump won Pennsylvania by just 44,000 votes in 2016, breaking the state’s long Democratic streak. Biden narrowly flipped it back in 2020, and now both sides are eyeing it as a must-win state in 2024.

The three main regions of the state tell the story:

Philadelphia and Its Suburbs

The urban stronghold of Philadelphia leans heavily Democratic, with large populations of Black voters, young professionals, and progressive activists. But as we saw in 2016, turnout is key. If Democrats fail to energize their base here, Trump could benefit. Suburban counties around Philadelphia, once reliably Republican, have shifted Democratic in recent cycles, driven by moderate, college-educated voters. Harris needs to maintain these gains to offset losses elsewhere.

Pittsburgh and Western Pennsylvania

Historically Democratic, Pittsburgh has seen its economy transition from heavy industry to tech and healthcare. In contrast, many of the surrounding counties and blue-collar voters have drifted toward Trump, attracted by his populist, pro-energy message. His support of fracking plays well here and Harris will have to walk a fine line on environmental policy to avoid alienating these voters.

Rural Pennsylvania

The so-called "T" of Pennsylvania, running through the center and north of the state, is Trump country. These voters, many of them rural, religious and blue-collar, were critical to Trump’s 2016 victory. They feel disconnected from the political elites and resonate with Trump's message of cultural conservatism and economic nationalism. To win Pennsylvania, Trump will need a repeat of the massive rural turnout that carried him across the finish line in 2016.

The Impact of a Trump Victory in Pennsylvania

If Trump manages to win Pennsylvania, the chances of him winning the election overall increase dramatically. A Trump victory, especially in a state as pivotal as Pennsylvania, would likely have a significant impact on financial markets.

Back in 2016, Trump’s unexpected win led to a sharp rise in bond yields—up by about 30%—as markets priced in the potential for tax cuts and deregulation. At the same time, equities rallied, with investors expecting business-friendly policies. If Trump wins again in 2024, we could see a similar market reaction. His promise of more tax cuts would likely be welcomed by equity markets, while bond yields could rise again as concerns about fiscal deficits mount.

However, this time around, the economic context is different. The U.S. is facing historically high interest rates, inflation remains elevated, and the national debt is ballooning. A Trump victory would likely reignite debates about the Federal Reserve’s independence. Trump has a history of pressuring the Fed to cut rates, and it’s widely expected that he would push for looser monetary policy if elected. This could create friction with the Fed, and any signs of political interference could unsettle markets.

Higher interest rates and rising bond yields would be especially concerning in an environment where government debt is already at record levels. Increased borrowing costs would add to the strain, and the risk of higher inflation could weigh on both bond and equity markets in the long term.

Conclusion

In the final stretch of this election, Pennsylvania stands at the center of the political and economic storm. Both Harris and Trump need to win here to secure the White House, and the state’s mix of urban, suburban, and rural voters will decide the outcome. The stakes couldn’t be higher, both for the future of U.S. policy and for financial markets.

For now, it’s impossible to predict which way Pennsylvania will go, but one thing is clear: the results here will have outsized consequences. If Trump does win the state, the market response could be similar to 2016—rising bond yields, an equity rally, and questions around the Federal Reserve’s next moves. But in the current high-debt, high-inflation environment, those market reactions might not play out as smoothly as they did last time. With so much uncertainty ahead, investors should be prepared for volatility, particularly in the bond market.