Here’s How The Stock Market Predicts The Presidential Winner
The 2020 election now just 60 days out. With this, who will win between President Trump and Democratic nominee Joe Biden is a coin toss.
With so much at stake for investors, many will hunt for any indicator to try and predict the outcome.
Mark Hulbert, a contributor to MarketWatch, says any such indicator should be taken with a brick-sized grain of salt.
“Be on your guard” if using an indicator to try and predict the outcome of the election. He warns particularly about ones that involve stock market performance.
He says the historical data can be twisted and cajoled into the desired outcome. Also, he mentions any arbitrary set of data should raise red flags.
LPL Financial chief market strategist Ryan Detrick says there is an indicator that predicts the outcome of the election. Additionally, it’s 100% accurate going back almost 40 years and is 87% accurate over nearly a century. This is despite Hulbert’s non-belief.
Who Will Win?
Amazingly, the indicator is as simple as it gets: the S&P 500’s performance in the three-month period ahead of Election Day.
This indicator shows that since Aug. 3, the S&P 500 has climbed almost 7%, the Dow Jones Industrial Average has gained more than 7% and the Nasdaq Composite Index has surged more than 9%.
Hedging ever-so-slightly, a positive return over the three-month period leading up to the election “may signal an increased likelihood that the incumbent party may win,” Detrick says. He also states, “stock market losses during the same period have tended to predict an opposition party win.”
Detrick acknowledges that this year may be unlike any other election year. This may happen as millions of Americans are still out of work due to the coronavirus pandemic. Also, there’s a large discrepancy between the economy and the stock market right now.
“The unique circumstances around this year’s pandemic seem to add plausibility that this could be the first time in almost 100 years that this signal may be wrong—especially if the stock market and economy continue to recover between now and Election Day,” he wrote.
Detrick also noted that President Trump has to contend with a recession during his bid for re-election.
“History has shown that when a recession has occurred during the two years before the election, the incumbent president has tended to lose. In fact, the economy incredibly has predicted the winner of every presidential election going back to President Calvin Coolidge,” says Detrick.