Want to know who will win the US presidential election? Look at the stock market.
Of course, there’s no crystal ball to predict who will win on November 5th.
Reliable polls show Vice President Kamala Harris and former President Donald Trump in a close race in what many observers say could be the closest race in decades.
Still, the performance of U.S. stocks has an impressive track record of predicting the outcome of presidential elections.
The S&P 500 index, which tracks the performance of the 500 largest U.S. publicly traded companies since 1928, has shown a winner in 20 out of 24 elections, according to an analysis by financial services firm LPL Financial.
In the three months leading up to Election Day, when U.S. stocks were rising, the incumbent party retained the White House 12 out of 15 times. And in eight of the past nine times when the market was in negative territory before the vote, the ruling party was defeated.
For a predictive model, this is not a bad track record.
With less than two weeks left until the election, the S&P 500 index is up 11.8% since early August.
Assuming U.S. stocks don’t fall dramatically in the final stages of the campaign, historical trends are clearly in Harris' favor.
However, there are many things to keep in mind.
Unfortunately for Harris, voters don’t seem to connect a strong stock market with a strong economy.
An estimated 61 percent of Americans own stocks, but the majority of voters have no exposure to the market.
In an Associated Press-NORC Center for Public Affairs Research poll released this week, 62% of registered voters, including an overwhelming majority of Republicans and independents, rated the state of the economy as “poor.”
On the plus side for Ms. Harris, voters have expressed increased confidence in the Democratic Party’s ability to handle economic issues, suggesting that Mr. Trump’s once clear economic advantage has all but disappeared. Suggests.
Despite the fact that the U.S. economy is performing at a level that is the envy of most developed countries, by most indicators, including gross domestic product (GDP) growth and unemployment, the overall picture remains bleak. are.
One of the most plausible and frequently cited reasons for the negative sentiment is that consumers are tired of rising prices, even though the inflation rate fell to 2.4 last month. The percentage is now closer to the Fed’s target after spiking during the coronavirus pandemic.
Wages have been growing faster than inflation for more than a year, but not yet enough to fully offset the rise in the cost of living since the pandemic.
According to a Bankrate analysis using Ministry of Labor statistics, prices rose about 20% between January 2021 and June this year, but wages rose only 17.4%.
While wage growth has continued to outpace inflation since then (4.2% compared to 2.6% in July-September), Bankrate believes the post-pandemic gap will only be fully closed. It is expected to be in the second quarter of 2025.
No matter how many positive economic statistics are released to tout the current government’s performance, consumers are reminded every time they stand at the supermarket checkout that everyday items are much more expensive than they used to be.
Another reason to be careful not to read too much into the predictive power of the stock market is that we seem to be living in an era of politics that doesn’t play by the rulebook.
Just as his 2016 victory broke numerous precedents, Trump’s very status as the Republican nominee despite four criminal charges, numerous scandals, and years of negative media coverage. , a challenge to conventional wisdom.
In fact, the last time the S&P 500 failed to predict the next occupant of the White House was the most recent election.
Trump led a 2.3% market rally before losing to President Joe Biden.
