Since 1984, the stock market has correctly predicted who will win the US presidential election, according to LPL Financial’s Senior Market Strategist Ryan Detrick.
And going back to 1928, the S&P 500 has correctly predicted who will win the US presidential election 87% of the time.
How can investors utilize the S&P 500 to better understand who might win the upcoming presidential election between Joe Biden and Donald Trump this November?
By following the price movements of the market in the three months leading up to the November 3 election.
“When the S&P 500 has been higher the 3 months before the election, the incumbent party usually won, while when stocks were lower, the incumbent party usually lost,” Detrick said in a note published Monday.
In 2016, very few expected Donald Trump to beat Hillary Clinton, except for the stock market.
“The Dow had a 9-day losing streak directly ahead of the election, while copper (more of a President Trump infrastructure play) was up a record 14 days in a row, setting the stage for the change in party leadership in the White House,” Detrick explained.
The three elections where the stock market incorrectly predicted the winner of the presidential election were:
1. In 1956, when incumbent Dwight D. Eisenhower won re-election despite the S&P 500 falling 3.2% in the three months before the election.
2. In 1968, when the incumbent party lost to Richard Nixon despite the S&P 500 rising 6% in the three months before the election.
3. In 1980, when the incumbent party lost to Ronald Reagan despite the S&P 500 rising 6.9% in the three months before the election.
Investors who are keen on presidential politics should keep a close eye on the stock market in the three months leading up to the November 3 election, as the stock market has a solid track record of predicting who will win the presidency.