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A Stock Market Metric That Has Correctly Predicted the United States Presidential Election Results Since 1984
Will it be correct for the upcoming election?
The stock market is a collection of exchanges where buying, selling, and issuing shares of publicly listed companies takes place. When it comes to measuring the stock market’s performance, specifically in the United States, the key index that has maintained that role is the S&P 500.
The S&P 500 is a market-cap weighted index of the 500 largest publicly listed companies in the United States. The performance of the S&P 500 is the stock market metric that has correctly predicted the United States presidential election results since 1984.
The 2020 United States presidential election is between incumbent President Donald Trump of the Republican Party and former Vice President Joe Biden of the Democratic Party. According to recent polls, Biden leads Trump 51% to 44%. The question is if that will maintain true come November 3rd, 2020.
In March 2020 due to the COVID-19 fueled selloff, the S&P 500 reached a significant low of 2,304.92 but has since rebounded to 3,402.01 as of October 26th, 2020. The most important aspect of the performance of the S&P 500 is its performance 3 months leading up to the election, which starts on August 3rd, 2020 for this upcoming election.
According to LPL Research, a leading independent finance and investment guidance firm, if the S&P 500 is up for the 3 months leading up to the election date, the incumbent party tends to win. If the S&P 500 is down for the 3 months leading up to the election date, the opposing party tends to win. The following table by LPL Research helps to break this down:
As you can see, from 1928 to 2016, the S&P 500 was only incorrect 3 times in predicting who will win the presidential election. It is important to note that data before 1957 incorporates the S&P 90, established in 1926. In 1957, the S&P 90 was expanded to a 500-company format and is what we know today as the S&P 500. From 1984 to 2016, the S&P 500 was not incorrect at all.
From August 3rd, 2020 to October 26th, 2020, the S&P 500 has been up approximately 3.3%. In that case, with the data we have so far, the incumbent party is expected to win. That means solely based on the S&P 500 performance, Donald Trump will be expected to win the 2020 United States presidential election.
Will the S&P severely drop over the next week? Even though the S&P 500 has been correct since 1984 in predicting the presidential election, this upcoming election has been seen as a coin toss in the eyes of researchers and analysts due to the COVID-19 outbreak and how Trump has handled it.
Next Tuesday, it will be November 3rd. If the S&P 500 is still up by November 3rd, will it be correct in predicting the presidential election results again? We will have to wait and see if the S&P 500 32-year streak in correctly predicting the presidential election will be continued or ended.
