Time-Honored Market Election Signal on Verge of Turning on Trump
An election indicator in the stock market is flashing a warning for Donald Trump’s chances on Nov. 3.
(Bloomberg) -- It’s a fool’s errand trying to find an election signal in a stock market roiled by a global pandemic, but investors will take any edge they can get. One such indicator is flashing a warning for Donald Trump’s chances on Nov. 3.
The sharp equities selloff over the past few days doesn’t bode well for the incumbent party, if history is any guide. Since 1928, the S&P 500’s performance in the three months leading up to the presidential election has correctly signaled who will win 20 out of 23 times, according to data compiled by Strategas Research Partners LLC. When stocks gain during that span, the sitting party has won 86% of the time.
The benchmark stock gauge is now below the level where it was Aug. 3 and has declined in eight of the past 12 sessions, capped by the 3.5% rout Wednesday that was the worst single-day drawdown since June.
“One of Trump’s favorite reasons for re-electing him is the market,” said Christopher Grisanti, chief equity strategist at MAI Capital Management. The selloff has come at “the worst time for the president. Covid cases are rising and there’s no vaccine.”
Of course in a year where the pandemic and ensuing lockdowns have upended virtually every political narrative, putting faith in a market indicator comes with its share of danger. Millions of Americans have already cast their vote, and polls show few people remain undecided before the vote.
Amid the latest turmoil, the S&P 500 sank below the 3,295 close reached Aug. 3, exactly three months before Tuesday’s vote. Should the index fail to reclaim losses over coming days, that could signal a victory for Democratic candidate Joe Biden if the relationship between elections and stocks holds up.
The theory proved spot on in 2016. Amid all the polls showing Democrat Hillary Clinton’s dominant lead over Trump, the S&P 500 fell for nine straight days before the election week, cementing the gauge’s decline below the level three months before voting day. In the end, Trump won.
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