LPL notes that this indicator has accurately predicted the winner of the election 87% of the time since 1928—and every single election year since 1984.
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As this year has shown, the stock market moves in mysterious ways. And since it’s an election year, there’s no shortage of prognosticators looking to Wall Street’s machinations for an indication of who will win the White House in November.
The folks at investment brokerage LPL Financial have offered one theory on what the stock market tells us about America’s upcoming choice between Donald Trump and Joe Biden. In fact, LPL notes that the performance of the S&P 500 has accurately predicted the winner of the election 87% of the time since 1928—and every single election year since 1984.
It works like this: when the S&P 500 is trending higher as of three months before the election, the incumbent party usually wins; when the index is moving lower, the incumbent usually loses.
Of course, with a little more than four months to go until Election Day, it may be too early to look to the market for signs. But if things continue as they have, President Trump could be in trouble. Since topping 3,200 points on June 8—capping off its extraordinary rebound from March’s heavy, coronavirus-induced correction—the S&P 500 has been on a downward trend, with the index opening Monday’s trading at 3,019 points.
“No one expected Hillary Clinton to lose back in 2016—no one except the stock market, that is,” according to LPL senior market strategist Ryan Detrick. Detrick also points to examples even closer to election day as an indication; he notes the Dow’s “nine-day losing streak directly ahead of the election” in November 2016, while the price of copper—which investors viewed as a “President Trump infrastructure play”—increased for a record 14 days in a row.
Those dynamics hinted at “the change in party leadership in the White House” to come, and may do so again in 2020, according to LPL.
So far, both the polls and the bookies seem to believe that a change could be in the cards. As Election Day inches closer, we’ll see whether the stock market agrees.
