Investors' nerves are running high as presidential election votes pour in. But one reliable stock market indicator tied to the S&P 500 already has its favorite.
The incumbent party was reelected 82% of the time when the S&P 500 rose in the three-month period from July 31 to Oct. 31, says data of U.S. Presidential elections going back to 1944 from CFRA's Sam Stovall. And that bodes well for hopeful Kamala Harris in 2024, the data shows. The S&P 500 gained 3.3% from July 31 through Oct. 31 of this year.
With that said, Stovall notes just how close this race is likely to be.
"The Presidential election of 2024 appears to be the tightest in recollection as the candidates are tied when looking at the polls and the margins of error," Stovall said. "As a result, it's anyone's guess as to who will be the eventual winner."
But the stock market does give clues.
The S&P 500's Presidential Election Indicator
The indicator is so valuable as it's been right 86% of the time.
It's been spot-on in recent elections. The S&P 500 fell 0.04% from July 31 to Oct. 31 in 2020. And that year, Democratic challenger Joe Biden defeated incumbent Republican Donald Trump. Similarly, in 2016 when the S&P 500 was down 2.2%, Trump beat the incumbent Democratic Party's candidate Hillary Rodham Clinton.
The indicator was only wrong during an up market in 1968 and 1980, when voters put Republicans back in office, Stovall said. And it was only wrong once during a down market for the S&P 500 in 1956. But that year came amid major political upheaval including Egypt's seizure of the Suez Canal and Soviet tanks entering Budapest.
This Indicator Can Be Wrong, Too
But no indicator is foolproof, says Stovall. The notable exception is 1968.
President Lyndon B. Johnson choose to not run for reelection that year. Vice President Hubert Humphrey was the Democratic candidate. Republican challenger Richard Nixon had been vice president under Dwight Eisenhower for eight years.
But the unpopular Vietnam War in 1968, which mainly took place during Johnson's administration, was too much of a headwind for Humphrey, who lost to Nixon.
So despite the S&P 500 indicator being highly accurate historically, "the race is really a toss-up at this point," Stovall said.
S&P 500 Presidential Predictor By Political Party
It's right 86% of the time
| Election Year | Democrat candidate | Republican candidate | S&P 500 % ch. | Correct Reelection | Correct Replacement |
|---|---|---|---|---|---|
| 1944 | FDR | Dewey | 0.6% | Yes | |
| 1948 | Truman | Dewey | 4.4% | Yes | |
| 1952 | Stevenson | Eisenhower | -3.5% | Yes | |
| 1956 | Stevenson | Eisenhower | -7.7% | No | |
| 1960 | Kennedy | Nixon | -3.8% | Yes | |
| 1964 | Johnson | Goldwater | 2.0% | Yes | |
| 1968 | Humphrey | Nixon | 5.8% | No | |
| 1971 | McGovern | Nixon | 3.9% | Yes | |
| 1976 | Carter | Ford | -0.5% | Yes | |
| 1980 | Carter | Reagan | 4.8% | No | |
| 1984 | Mondale | Reagan | 10.2% | Yes | |
| 1988 | Dukakis | Bush | 2.6% | Yes | |
| 1992 | Clinton | Bush | 1.3% | Yes | |
| 1996 | Clinton | Dole | 10.2% | Yes | |
| 2000 | Gore | Bush | -0.1% | Yes | |
| 2004 | Kerry | Bush | 2.6% | Yes | |
| 2008 | Obama | McCain | -23.6% | Yes | |
| 2012 | Obama | Romney | 2.4% | Yes | |
| 2016 | Clinton | Trump | -2.2% | Yes | |
| 2020 | Biden | Trump | -0.04% | Yes | |
| 2024 | Harris | Trump | 3.3% | ? |
