How the stock market can predict the outcome of the presidential election

Since 1928, the S&P 500 has an 83% accuracy rate in determining which political party will win the White House.

• The stock market can help predict the winner of the presidential election.
• Since 1928, the S&P 500 has had an 83% accuracy rate in predicting election outcomes.
• The S&P 500's performance in the three months before the election is the key indicator to watch.

The stock market can help predict who will win the Presidential election in November.

According to LPL chief technical strategist Adam Turnquist, since 1928, the S&P 500 has had an 83% accuracy rate in determining which political party will win the White House.

"While polls, betting odds, and forecasts can provide valuable insights into potential election outcomes, the data can be noisy. To avoid some of that noise and potential biases, keep an eye on how the market performs," Turnquist said in a note on Thursday.

Specifically, he highlighted the stock market's performance in the three-month window before election day as the ultimate predictor of who will win the presidency.

That key stretch officially began this week on Monday.

"Since 1928, whenever the S&P 500 was positive during the three months leading up to an election, the incumbent party remained in control of the White House 80% of the time," Turnquist said.

For example, in the three months heading into the 2008 election, the S&P 500 dropped 24.8%. The Democrats ultimately won, with President Barack Obama ending Republican control of the White House after eight years.

On the flip side, when the stock market printed a negative return in the three months leading up to the election, the incumbent party lost the election 89% of the time.

For example, the S&P 500 fell 2.3% heading into the 2016 Presidential election, and President Donald Trump ultimately led the Republican party to victory, ending Democrats' control of the White House after eight years.

Altogether, this stock market rule has correctly predicted 20 of the last 24 elections, an overall accuracy rate of 83%.

However, the market can get it wrong, too, with the 2020 presidential election being a prime example.

The S&P 500 rose 2.3% leading up to the 2020 election, yet the incumbent party, led by President Donald Trump, lost the election to President Joe Biden.

While the stock market predictor of the November election isn't perfect, it is worth watching.

While the S&P 500 is down about 0.5% since the three-month window opened on Monday, pegging Republicans as the favorite to win in November, there are still 88 days to go before Americans vote.