The U.S. is just 82 days away from the 2024 presidential election. And as polls, pundits and prognosticators proceed their attempts at predicting whether Vice President Kamala Harris or former President Donald Trump will take the White House, there’s one indicator that is proven to be a really accurate barometer: the stock market.
Political analysts and pollsters often depend on other measures of the economy, like gas prices, unemployment and inflation, to forecast election outcomes. But for greater than 90 years, the market’s performance has been highly correlated with who ultimately occupies 1600 Pennsylvania Avenue.
The stock market’s track record of predicting election winners
Within the lead-up to Election Day, the performance of the S&P 500 — the benchmark index synonymous with the stock market — has accurately predicted the winner of the U.S. presidential election 83% of the time, based on research conducted by LPL Financial Holdings, the most important financial advisory firm within the U.S.
Since 1928, the incumbent party remained in charge of the White House in 12 out of the 15 elections when the S&P 500 was positive through the three months leading as much as an election. On the flip side, the incumbent party lost the election eight out of the last night times when market returns fell within the three months before an election.
“When combined, market performance has ‘predicted’ 20 of the last 24 elections,” Adam Turnquist, chief technical analyst at LPL Financial, wrote.
Historically, the S&P 500 has not posted its strongest 90-day performance of the yr leading as much as Election Day. Based on data from 1950 through 2023, listed below are the common monthly returns during that period:
- August: -0.20%
- September: -0.87%
- October: 0.75%
Cumulatively, those three months have a mean return of -0.32%. The market’s strongest three months from 1950 to 2023 are November (1.63%), April (1.45%) and December (1.36%).
Nevertheless, in any given yr, market conditions, investor sentiment and economic aspects can vary widely. Due to this fact, historical performance — while providing context — isn’t the perfect indicator of how the S&P 500 will perform on a year-by-year or month-by-month basis.
Exceptions to the rule
The 4 anomalies indicated in LPL Financial’s research can partially be attributed to economic and political circumstances particular to those election cycles.
1956: When President Eisenhower won re-election despite the S&P 500 falling -3.2% within the three months preceding Election Day, he was riding a 78% approval rating, based on Cornell University’s Roper Center for Public Opinion Research. This was largely based on record employment, high wages and stable prices.
1968: President Nixon narrowly defeated incumbent Vice President Hubert Humphrey in a yr that saw three candidates on the ballot, with Democrat George Wallace running as an Independent and receiving a large 13.5% of the favored vote. Nixon managed a 0.7% margin of victory over Humphrey, who took the party’s nomination within the wake of Robert F. Kennedy’s assassination. The S&P 500 gained 6% within the lead-up to that yr’s election.
1980: When President Regan supplanted President Carter, 1979’s oil crisis was fresh in voters’ minds and inflation — at 13.5% — was the very best since 1947. The stock market gained 6.9% within the 90 days before the election.
2020: After the transient pandemic-induced bear market, the S&P 500 returned 2.3% within the three months prior to Election Day. Despite the market rebound, President Trump’s approval rating dipped below 30%, unemployment was as high as 8.4% within the weeks leading as much as the election and a record variety of Americans voted.
The outlook for 2024
There isn’t a crystal ball showing who will win the election this November, and polls have proven to be unreliable gauges. Likewise, basing outcomes on the stock market’s short-term performance is hardly an ideal science.
We’re now two weeks into that crucial 90-day window before the election, and up to now, it has been a bumpy ride. After the S&P 500 reached its all-time high in mid-July, a sell-off resulted out there falling by over -8%.
But since Aug. 5, the benchmark index has recovered greater than 5%. This heightened volatility has contributed to a murkier outlook over the following three months.
Before 2020, the stock market appropriately called the consequence of the previous nine presidential elections. Will its penchant for political predictions return this yr? We’ll know of course on Tuesday, Nov. 5.
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