When it comes to Trump's relentless surge in the polls, one thing is certain: the so-called "pundits", biased from day one, were, are, and will continue to be completely wrong. But as the day approaches when Trump appears set to win the GOP presidential nomination and face off against Hillary, who should one listen to? Well, according to InvesTech's James Stack, with a track record of 86.4%, the market may be an almost flawless arbiter of the election outcome long before November.
Does the stock market affect or predict the election outcome?
The old saying that “people vote their pocketbooks” is more accurate than the average political analyst thinks. While Wall Street typically worries about how politics might affect the market, perhaps Presidential candidates should worry about how the stock market might affect their political outcomes.
Historically, the market performance in the three months leading up to a Presidential Election has displayed an uncanny ability to forecast who will win the White House… the incumbent party or the challenger. Since 1928, there have been 22 Presidential Elections. In 14 of them, the S&P 500 climbed during the three months preceding election day. The incumbent President or party won in 12 of those 14 instances. However, in 7 of the 8 elections where the S&P 500 fell over that three month period, the incumbent party lost.
There are only three exceptions to this correlation: 1956, 1968, and 1980. Statistically, the market has an 86.4% success rate in forecasting the election!
This relationship occurs because the stock market reflects the economic outlook in the weeks leading up to the election. A rising stock market indicates an improving economy, which means rising confidence and increases the chances of the incumbent party’s re-election. Therefore, your time might be better spent from August through October watching the stock market rather than the debates if you want to know who will be President for the next four years.
Here the reflexive question emerges: does the market predict the election outcome, or does the move in the market - whether by design or by chance - predetermine the election outcome?
Now if only Donald Trump, or his backers for whatever reasons they may have, could orchestrate a market crash...