It's The Economy Stupid: If The Stock Market Is An Indication Of Who Won, Here Is What It Says

Written By BlabberBuzz | Wednesday, 04 November 2020 02:50 PM
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It's The Economy Stupid: If The Stock Market Is An Indication Of Who Won, Here Is What It Says

The S&P 500's course in the three months leading up to elections correctly prophesied 20 of the past 23 elections, says Ryan Detrick, market strategist at LPL Financial. Especially, when the S&P 500 is up in the three months before the election, the incumbent political party usually sees victory. And when the S&P 500 is lower in the months before the election, the incumbent party usually fails.

So what's that S&P 500 pointer saying now? Thanks to the S&P 500's 1.2% last-minute gain Monday to 3310.24, it's leaning toward President Trump, barely. The index is now higher 0.11% from Aug. 4. The S&P 500 is up just 3.7 S&P 500 points. It's even closer with the SPDR S&P 500 ETF Trust. The top S&P 500 ETF is up 0.13 points or 0.04%. Yes, it's that close. Detrick says the S&P 500's total return, including dividends, is 0.5% in three months.

There are more reliably accurate polls, like Investor's Business Daily's. It's just one of the rare polls to correctly predict the 2016 Presidential stunner. And in 2020, the IBD poll was calling for a slim win by Democratic candidate Joe Biden late Monday, with one more poll to go.

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However, seeing a rally this close to the election is a possible backing for the Republicans. The S&P 500 is up 2.6% this year amid seasonal strength. Since 1928, this pointer only missed in 1956, 1968 and 1980, Detrick claimed.

"Historically, the stock market is a great predictor of who will be in the White House," Detrick said. "Remember 2016 when nearly everyone thought former Secretary of State Hillary Clinton would win? Well, stocks didn't buy it, as the S&P 500 fell ahead of the election and signaled a change in party."

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Though it may be different this time. If there's a year any prediction would be wrong, it's this year. The S&P 500's three-month change is microscopic and was actually down until the last minutes of trading on Monday.

And with the coronavirus exploding, voters might prioritize other factors. Expect shocks. "Although all election years feel different, 2020 no doubt may be one of the most unique election years ever," Detrick said. "We have a pandemic, a deep recession, extremely heightened partisanship, a mail-in ballot controversy, an unpredictable president and the oldest presidential candidate ever."

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Since the race is so close, the period you choose to measure the S&P 500 is critical, too.

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