Voters are clamoring for any hints of clarity about the neck-and-neck presidential race, so some are looking beyond public opinion polls.
Wall Street executives, political gamblers and cryptocurrency traders are piling up their bets that former President Donald Trump is returning to the White House.
But the stock market may be telling a different story.
U.S. stocks have been on a tear, with the bellwether S&P 500 index climbing more than 10 percent since August. While the stock market is not necessarily representative of the broader economy, the S&P 500’s performance in the run-up to Election Day has historically been a strong indicator of whether the incumbent party’s candidate will retain control of the White House — correctly forecasting all but four presidential races over the last 96 years.
If the index is falling, the theory goes, investors are bracing for more uncertainty from a new administration. But a climb in the S&P 500 signals that the market is expecting the current president’s party to win. And the index’s recent rise is suggesting that Vice President Kamala Harris, who took over the Democratic ticket from President Joe Biden this summer, could be bound for victory.
“The market’s making a call for Harris to win,” said Adam Turnquist, chief technical strategist at the financial services company LPL Financial, which has compiled data on elections and stock prices. “When there’s more certainty about the incumbent party winning the White House, we know for the most part the policies they’ve [installed]. There’s just a level of comfort that the market has with that certainty.”
Voters are clamoring for any hints of clarity about the neck-and-neck presidential race. That’s led to a surge of attention not only on public opinion polls but also on election-betting markets — which are leaning toward Trump — and just about any other indicator of who will prevail, from the “Redskins Rule” and the World Series to the Dow Jones Industrial Average and the S&P 500.
“People are just naturally going to feel anxiety,” said Justin Grimmer, a public policy professor at Stanford University. “All of these things, I think, are ways for people to try to relieve this anxiety they have about this election.”
To be certain, there are plenty of doubters on Wall Street about the S&P 500’s predictive power. Monica Guerra, head of U.S. policy at Morgan Stanley Wealth Management, told POLITICO that the market is no “crystal ball.” The S&P steadily climbed throughout the year, often from gains recorded by a handful of tech giants or news on the Federal Reserve’s fight against inflation — and not likely on election developments. Trump, for his part, has regularly claimed credit for the stock market’s gains, saying investors believe that his return to power would boost share prices even more.
But the index, which tracks the stock performance of the largest public companies trading in the U.S., has proved prescient about the presidency. Effectively, if it climbs in the three months before polls close, the candidate from the incumbent party tends to win. If the index falls, the incumbent party loses, LPL Financial says.
Data collected by LPL shows the index has gotten the election right in 20 of the last 24 presidential contests, including in 2016, when Trump’s win shocked the world. The index, according to LPL, fell 2.3 percent leading up to Election Day — indicating that a change in the White House was looming.
“You were laughed at for even thinking about it,” Turnquist said of Trump’s victory. “But the market was right.”
The S&P 500, however, is not a perfect forecasting tool. The index’s movements in 2020 indicated that Trump was likely to win a second term over President Joe Biden. And this year, many on Wall Street are once again wagering that he will soon return to power.
