When the S&P 500 fell in the three months leading up to the November vote during a presidential election year, the incumbent president or party of the outgoing president has lost the election 88% of the time.
When the S&P 500 rises during that period, the incumbent or party of the outgoing president has won 82% of the time.
So what happened this year?
The S&P 500 fell 0.04% between July 31 and October 31.
That means the market forecasts that Joe Biden will win, according to CFRA Research’s Presidential Predictor.
Going back to 1944, it’s found that a positive move over that period usually corresponds to a presidential victory by the incumbent party, while a negative move signals a loss.
As a recent example, even when the polls were wrong in 2016, the stock market’s “presidential predictor” was right about who would win the election:
The S&P 500’s 2.2% decline in the three months leading up to November 2016 signaled that the incumbent party in the White House, the Democrats, would be replaced.
Thsi meant that Donald Trump would defeat Hillary Clinton despite what the polls said.
The CFRA Presidential Predictor’s only incorrect forecast when the market fell in the three months leading up to an election was in 1956, when incumbent President Dwight Eisenhower defeated Adlai Stevenson despite a 7.7% stock market decline during the Suez Crisis and the Hungarian Uprising.
What do the polls say?
Joe Biden is the strong favorite to win Tuesday’s US presidential election.
- The electoral model run by Nate Silver, the US pollster, puts the probability of a Biden win at 88%. (This still means Trump has a 12% chance which isn’t insignifcant.)
- The Economist’s model assumes an even higher probability, of 95% in winning the electoral college and a 99% probability in winning the most votes.
- The New York Times estimates that even if the polls were as wrong as they were in 2016, Biden would still win by a wide margin.
- CNN polling shows Biden with a sizable head-to-head nationwide lead, and within striking distance of the 270 electoral votes needed to claim victory.
- An average of recent polls compiled by RealClearPolitics gives Democratic candidate Joe Biden a 7.2 percentage point lead over US president Donald Trump.
- Betting markets assess Mr Biden’s probability of winning as 64%
We’ll find out this Wednesday (Election Day)…
Or the next day or…
The week after, or maybe by December 14, when the Electoral College meets to vote, or maybe by January 20, 2020 (Inauguration Day) or maybe after?
It’s quite likely that a clear victor will not emerge on election night, and, possibly for weeks or even months, especially as early mail-in ballots past 90 million and counting.
Trump has questioned the validity of mail-in votes and suggested he might refuse to concede defeat. This could lead to days or weeks of uncertainty and legal battles in the case of a close outcome.
Three-quarters of Americans are concerned about the possibility of violence on and after Election Day,
It’s horribly uncertain, and that’s an ongoing problem for the markets.
The markets may not see much relief in the week ahead, with many investors and traders apprehensive about the possibility of an unclear or disputed election result.
