The stock market's unexpected wager on the presidential winner
As voters seek clarity in the closely contested presidential race, many are turning their attention away from public opinion polls in search of additional insights.
TroibNews 
Wall Street executives, political strategists, and cryptocurrency traders are increasingly betting on a potential return of former President Donald Trump to the White House. However, the stock market appears to be signaling something different.
U.S. stocks have experienced significant growth, with the S&P 500 index rising over 10 percent since August. Although the stock market doesn't serve as a definitive indicator of the broader economy, historical performance of the S&P 500 leading up to Election Day has been a strong predictor of whether the incumbent party's candidate retains control of the presidency. This pattern has accurately forecasted all but four presidential elections in the past 96 years.
The prevailing theory suggests that a falling index indicates investor anxiety over the uncertainty of a new administration. Conversely, an increase in the S&P 500 implies that the market anticipates a victory for the incumbent party, which current trends suggest may favor Vice President Kamala Harris—the new Democratic nominee after President Joe Biden stepped aside this summer.
“The market’s making a call for Harris to win,” said Adam Turnquist, chief technical strategist at LPL Financial. “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.”
Voter interest in determining the likely outcome of the close presidential race is driving attention toward various indicators, including public opinion polls, election-betting markets favoring Trump, and even unconventional measures like the “Redskins Rule”, World Series results, and stock performance.
“People are just naturally going to feel anxiety,” said Justin Grimmer, a public policy professor at Stanford. “All of these things, I think, are ways for people to try to relieve this anxiety they have about this election.”
Despite this, skepticism remains about the S&P 500's predictive capabilities. Monica Guerra, head of U.S. policy at Morgan Stanley Wealth Management, stated that the market is no “crystal ball.” The S&P has consistently climbed throughout the year, primarily due to gains from a select few tech companies and developments concerning the Federal Reserve’s inflation efforts, rather than election factors. Trump has often attributed stock market gains to the belief that his return could further increase share prices.
The S&P 500, a reflection of major U.S. companies’ stock performance, has historically been a strong predictor of electoral outcomes. Traditionally, when the index rises in the three months prior to an election, the incumbent party's candidate tends to emerge victorious; conversely, a decline usually signals a loss for the incumbents, according to LPL Financial.
LPL's data shows that the index has correctly predicted 20 of the last 24 presidential elections, including in 2016, when Trump’s victory surprised many. Leading up to that election, the index had dropped 2.3 percent, suggesting a shift in administration was likely.
“You were laughed at for even thinking about it,” Turnquist recalled regarding Trump’s 2016 win. “But the market was right.”
Still, the S&P 500 is not infallible. Its movements in 2020 suggested Trump would secure a second term against Biden, which did not occur, and once again, many on Wall Street appear to be banking on Trump’s political resurgence.
“The inside of the market is very convinced Trump is going to win,” billionaire investor Stanley Druckenmiller remarked on Bloomberg Television, referencing the performance of bank stocks, cryptocurrency values, and the potential benefits to Trump's media company from a possible victory.
Since hitting a low last month, Trump Media’s share price has surged over 200 percent.
Additionally, stocks thought to benefit from a Trump presidency are also seeing gains. Morgan Stanley's recent research indicates that investment products tied to sectors likely to thrive under Republican leadership have outperformed Democratic counterparts by 10 percent this year. These Republican-oriented holdings typically include energy companies, banks, and crypto firms.
Guerra noted the conflicting indicators stem from the divided electorate and the tight race in swing states. “This is a true toss-up. You can see that dynamic play out both in the markets and the economy.”
In a statement, Karoline Leavitt, the Trump campaign's national press secretary, asserted that the former president “continues to dominate in poll after poll.”
“Republicans have made massive voter registration gains, and we are far outperforming in our share of the early vote relative to two or four years ago across all battleground states,” Leavitt claimed. “Voters know that Kamala Harris has destroyed our country, but President Trump will fix it — and that is why he is well-positioned for victory on November 5.”
Requests for comment from the Harris campaign received no response.
Another skeptic, Reena Aggarwal, a finance professor at Georgetown University, argues that today’s stock indexes are even less representative of the overall economy than in the past, primarily due to their concentration in Silicon Valley successes. With a significant number of major private companies not traded publicly, the index may not reflect the “broad economy” as effectively as it once did.
“The market and the broader economy — there’s a disconnect,” Aggarwal said.
For Grimmer, while the historical link between economic indicators and presidential outcomes is significant, it has its limitations.
“There are a lot of patterns in the world that can be found slicing up various data points,” he advised. With voters’ economic perceptions divided as Election Day approaches, the S&P 500 may not serve as the most reliable predictor of electoral outcomes.
“You can only use history so much,” Grimmer concluded. “We’re just going to have to wait and find out. It’s a coin flip.”
Max Fischer contributed to this report for TROIB News
U.S. stocks have experienced significant growth, with the S&P 500 index rising over 10 percent since August. Although the stock market doesn't serve as a definitive indicator of the broader economy, historical performance of the S&P 500 leading up to Election Day has been a strong predictor of whether the incumbent party's candidate retains control of the presidency. This pattern has accurately forecasted all but four presidential elections in the past 96 years.
The prevailing theory suggests that a falling index indicates investor anxiety over the uncertainty of a new administration. Conversely, an increase in the S&P 500 implies that the market anticipates a victory for the incumbent party, which current trends suggest may favor Vice President Kamala Harris—the new Democratic nominee after President Joe Biden stepped aside this summer.
“The market’s making a call for Harris to win,” said Adam Turnquist, chief technical strategist at LPL Financial. “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.”
Voter interest in determining the likely outcome of the close presidential race is driving attention toward various indicators, including public opinion polls, election-betting markets favoring Trump, and even unconventional measures like the “Redskins Rule”, World Series results, and stock performance.
“People are just naturally going to feel anxiety,” said Justin Grimmer, a public policy professor at Stanford. “All of these things, I think, are ways for people to try to relieve this anxiety they have about this election.”
Despite this, skepticism remains about the S&P 500's predictive capabilities. Monica Guerra, head of U.S. policy at Morgan Stanley Wealth Management, stated that the market is no “crystal ball.” The S&P has consistently climbed throughout the year, primarily due to gains from a select few tech companies and developments concerning the Federal Reserve’s inflation efforts, rather than election factors. Trump has often attributed stock market gains to the belief that his return could further increase share prices.
The S&P 500, a reflection of major U.S. companies’ stock performance, has historically been a strong predictor of electoral outcomes. Traditionally, when the index rises in the three months prior to an election, the incumbent party's candidate tends to emerge victorious; conversely, a decline usually signals a loss for the incumbents, according to LPL Financial.
LPL's data shows that the index has correctly predicted 20 of the last 24 presidential elections, including in 2016, when Trump’s victory surprised many. Leading up to that election, the index had dropped 2.3 percent, suggesting a shift in administration was likely.
“You were laughed at for even thinking about it,” Turnquist recalled regarding Trump’s 2016 win. “But the market was right.”
Still, the S&P 500 is not infallible. Its movements in 2020 suggested Trump would secure a second term against Biden, which did not occur, and once again, many on Wall Street appear to be banking on Trump’s political resurgence.
“The inside of the market is very convinced Trump is going to win,” billionaire investor Stanley Druckenmiller remarked on Bloomberg Television, referencing the performance of bank stocks, cryptocurrency values, and the potential benefits to Trump's media company from a possible victory.
Since hitting a low last month, Trump Media’s share price has surged over 200 percent.
Additionally, stocks thought to benefit from a Trump presidency are also seeing gains. Morgan Stanley's recent research indicates that investment products tied to sectors likely to thrive under Republican leadership have outperformed Democratic counterparts by 10 percent this year. These Republican-oriented holdings typically include energy companies, banks, and crypto firms.
Guerra noted the conflicting indicators stem from the divided electorate and the tight race in swing states. “This is a true toss-up. You can see that dynamic play out both in the markets and the economy.”
In a statement, Karoline Leavitt, the Trump campaign's national press secretary, asserted that the former president “continues to dominate in poll after poll.”
“Republicans have made massive voter registration gains, and we are far outperforming in our share of the early vote relative to two or four years ago across all battleground states,” Leavitt claimed. “Voters know that Kamala Harris has destroyed our country, but President Trump will fix it — and that is why he is well-positioned for victory on November 5.”
Requests for comment from the Harris campaign received no response.
Another skeptic, Reena Aggarwal, a finance professor at Georgetown University, argues that today’s stock indexes are even less representative of the overall economy than in the past, primarily due to their concentration in Silicon Valley successes. With a significant number of major private companies not traded publicly, the index may not reflect the “broad economy” as effectively as it once did.
“The market and the broader economy — there’s a disconnect,” Aggarwal said.
For Grimmer, while the historical link between economic indicators and presidential outcomes is significant, it has its limitations.
“There are a lot of patterns in the world that can be found slicing up various data points,” he advised. With voters’ economic perceptions divided as Election Day approaches, the S&P 500 may not serve as the most reliable predictor of electoral outcomes.
“You can only use history so much,” Grimmer concluded. “We’re just going to have to wait and find out. It’s a coin flip.”
Max Fischer contributed to this report for TROIB News
