As the US is currently in the final day of an evenly-balanced presidential race, investors are trying to make sense of the outcome, mainly from poll predictions and in share price movements in stocks related to Donald Trump.
However, according to a report by CNN, there is a simpler predictor that has far accurately predicted election outcomes since 1944 - the party in the White House tends to win when the US stock market rises ahead of a presidential election.
The CNN report discusses a stock market indicator that has historically predicted US presidential election outcomes. As suggested by this indicator that was devised by CFRA Research’s Sam Stovall, when the S&P 500 rises between the end of July and Halloween in an election year, the incumbent party tends to win the White House. This pattern has held true in 82 percent of cases since 1944, argues the report.
This year, the S&P 500 rose 3.3 percent between July and October, which could signal a win for the current administration, especially given the strong market performance in 2024.
Historically, a rising stock market indicates investor optimism about the economy and suggests that voters are less likely to blame the incumbent party for economic troubles, such as a recession.
“If the market goes up, the incumbent party typically wins. If the market goes down, the incumbent party gets replaced,” Stovall told CNN on Monday. When the S&P 500 falls between the end of July and the end of October, the incumbent party has been replaced 89 percent of the time, he added.
In contrast, a declining market has often preceded a change in administration, as economic difficulties typically lead voters to seek change. The article notes that this indicator has been accurate in past elections, including 2016 and 2020, where market trends aligned with Trump’s losses to Hillary Clinton and Joe Biden, respectively.
In 2016, the S&P 500 fell 2.2 percent in the lead-up to Trump’s matchup with the Democratic nominee, Hillary Clinton. Clinton, who served as Secretary of State in the Obama administration, lost to Trump despite big leads in most October polls. Meanwhile, the S&P 500 fell marginally by just 0.04 percent in 2020, in the final months before the election, and Trump ended up losing to Joe Biden.
However, the indicator is not fool proof. It was incorrect in a few instances, such as the 1968 election, where the market rose, but Hubert Humphrey lost to Richard Nixon. Other factors, like geopolitical issues or domestic crises (e.g., Vietnam War in 1968 or the Iran hostage crisis in 1980), can still influence the outcome.
The article also highlights that 2024’s market performance is historically strong, with the S&P 500 up nearly 20 percent by the end of October, driven by factors like optimism about the economy, the Federal Reserve’s rate cuts, and investor interest in AI and tech stocks.
Additionally, the Dow Jones Industrial Average has been a similar predictor of incumbent party victories, which may also provide encouragement to the Harris team, the report noted. Through the 11 weeks leading up to Election Day, the Dow has risen 2.4 percent, further supporting the idea that the incumbent party may have the upper hand.
In conclusion, while this stock market-based indicator is not infallible, it suggests that the incumbent party, and Vice President Kamala Harris in particular, may have a favorable outlook in the 2024 election.
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