The Stock Market Predicted Presidential Election Outcomes Accurately 87% Of The Time Since 1928, Studies Show

The Stock Market Predicted Presidential Election Outcomes Accurately 87% Of The Time Since 1928, Studies Show

stock market
The stock market predicted 87% of presidential elections since 1928. Why should this year be any different? Trader Thomas Lee works on the floor of the New York Stock Exchange, Feb. 28, 2020. (AP Photo/Richard Drew)

The stock market could be one of the best indicators of who will win the 2020 presidential election, based on the history of the S&P 500 in election years since 1928.

When stocks gained in the three months before the election, the incumbent party tended to win and vice versa when stocks were lower, according to Ryan Detrick, financial chief market strategist with wealth manager LPL Financial, an independent broker-dealer.

This has been true since 1928, when the forerunner to the S&P was first formed. The stock market has been wrong just three times in the last 23 presidential election years, according to LPL.

The index has predicted the election winner 87 percent of the time, and, since 1984, it has been accurate every presidential election year.

The question is, will the 2020 election be predictable in a year that has been historic for its devastation?

In 2020 so far, the coronavirus has claimed 188,070 lives in the U.S. — deaths some people blame on ane incumbent president who is in denial and unwilling to come up with a unified strategy to fight the pandemic. “Trump creates his own pandemic-free reality,” read a recent headline in the New York Times.

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On the other hand, 2020 gave the U.S. ts fastest bear market ever, one of the greatest stock market losses and recoveries, and a historic economic nosedive in the second quarter.

Trump has tweeted relentlessly about how the stock market is doing.

“The market is a gauge of how investors feel about the future,” CIO reported. “If they believe that sunny days lie ahead, they tend to reward the sitting president for stewardship of the economy. And up until covid-19 kicked the legs out from under economic growth, the stock market had been roaring. After a harrowing plunge, it rebounded sharply starting in late March.”

The president has been unwilling and unable to deal with the pandemic because he was fixated on the stock market over fixing the problem, Biden running mate Kamala Harris said on Aug. 27. “He was convinced that if his administration focused on this virus, it would hurt the market and hurt his chances of being re-elected.”

October has a reputation of being weak in election years, according to Stock Trader Almanac.

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In 2016, no one expected Hillary Clinton to lose, except the stock market that is, Detrick wrote in an LPL blog. “Stocks were quite weak before that upset.”

Why has the stock market predicted the outcome of presidential elections so accurately in the past and what could it be telling us?

“Maybe Wall Street can sense there is change in the air and this leads to uncertainty over what the new leadership might look like, so there is selling,” Detrick wrote. “Compare this when markets feel comfortable with the incumbent party winning, as they likely know what to expect based on the previous four years.”

Read more: Strategist Says The Fed’s Money Printing And Manipulation Are Pushing Stock Prices Higher