Can Market Returns Predict Presidential Elections?
We are now within three months of the November 3rd presidential election and want to point out an interesting correlation between historical S&P 500 returns and presidential election results. Per research from LPL Financial (see table below), the S&P 500 has correctly predicted the winner of the presidential elections 87% of the time since 1928 and 100% of the time since 1984. The logic is simple: when the S&P 500 trades higher in the three months leading to the election, the incumbent party typically wins, but when the S&P 500 trades lower, the incumbent party usually loses. Last election is a great example, as Hillary Clinton appeared to be the heavy favorite and yet the S&P 500 dropped over 2% in the three months preceding the election and the Democrats ultimately lost the oval office. The market has been very calm lately, so we expect increased volatility as we get closer to the election, but so far, the S&P 500 is up over 2% since August 3, 2020. Therefore, with Joe Biden leading President Trump by a healthy 6.4 percentage points per the recent RealClearPolitics average of polls, it will be very interesting to see if the S&P 500 can accurately predict another presidential election.
Ian Browning, CFA | Director, Investment Strategies & Shareholder
Peter E. Simmons, JD | President & CEO