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Will the Stock Market (S&P 500) Predict the Winner of the 2016 U.S. Presidential Race?

By: Elite Legacy Education, September 20, 2016

Will the Stock Market (S&P 500) Predict the Winner of the 2016 U.S. Presidential Race?*

 

*This article is NOT an endorsement of any political candidate or viewpoint. The information is being presented from the original source(s) so that readers may draw their own conclusions.

With the 2016 election for the presidency of the United States less than 100 days away, political experts and junkies are frantically rushing to come up with a model to predict who has the greatest chance of being the winner. Some experts are choosing to opt for the route of complex statistical analysis based on an aggregation of multiple polls. Others are choosing to rely on the principles of human psychology and persuasion as a predictor of the end result. A criminally underrated way to predict the winner would be to look at the infamous S&P 500.

Believe it or not, the S&P 500 has had an 86.4% success rate with predicting the winner of the presidential election in 19 of the previous 22 elections (since 1928). This is based on performance of the S&P 500 in the last three months of the election. There were only three exceptions to the rule: 1956, 1968 and 1980.It goes back to the old saying of “People vote with their pocketbooks.”

This image shows the results in action:

The premise is fairly simple: When stocks rise over the three-month period, the incumbent party wins the election. This indicates that the economy is improving and thus confidence rises in support of the incumbent party.

Conversely, the new party wins the White House if the S&P 500 falls. This would indicate an economy that is becoming weaker and it reflects poorly on the incumbent party. For the sake of simplicity, this form of prediction does not take any third party candidacies into account. 

This leaves readers with the chicken-or-the-egg question: Do stocks reflect the direction that the economy is headed in and thus influence how people vote? Or do stocks themselves predict the outcome of the election? Perhaps one of the presidential candidates might make a move that causes a shift in the S&P 500 in their favor.

It could also be the case that this model ends up being wrong for the fourth time in its history. This four-year election cycle has been extremely unpredictable and the unthinkable has happened in front of our eyes. All we can do is buckle our seatbelts tight and see what the upcoming presidential debates will bring us.

What are your thoughts on the S&P 500prediction model? Does it do a better job of predicting the presidential election than the existing ones? Share your opinion on social!

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