With six months left until the presidential election, the stock market may hold clues to who will take the White House next January.
Historically, the state of the U.S. economy leading up to an election has had a strong correlation with how the country votes.
Investors often look for patterns in past market movements to predict what will happen in the future.
An analysis of the S&P 500’s returns over the past 90 years reveals that economic growth tends to be strong in advance of election years in which incumbent presidents are re-elected.
By contrast, when incumbents lose, America’s largest companies appear to be losing momentum, sowing doubts about the country’s economy and leadership.
This year’s S&P 500 index has historically behaved similarly to when a sitting president is reelected to a second term.
Economic growth could inspire confidence in Biden’s leadership ahead of the election, but persistent inflation problems could undermine that confidence.
So the S&P 500’s performance this year could shed some light on who wins the November election, when incumbent President Joe Biden faces a second term challenge from Donald Trump.
At the moment, it shows Biden winning. Because in just four months he’s up over 5%.
“This particular metric is [the stock market] “This trend is similar to the average winning path for incumbents,” said Courtney Gelman, managing director at brokerage firm Strategas, which published the study.
She added, “However, please note that we consider several market, economic and other factors regarding elections.”
“Some of it, like this graph and the fact that the U.S. has avoided recession so far, looks positive for Biden’s re-election.
“On the other hand, other things look negative, such as disposable income growth and Biden’s approval rating.
“We will be monitoring these indicators, along with indicators such as the misery index (inflation and unemployment)…and as we approach November, we will be monitoring the performance of the S&P 500 in the three months leading up to the election. intend.”
He also said he would track the prices of stocks associated with Trump and Biden.
For example, thanks to Biden’s support for electric vehicles, the stock prices of companies that manufacture and are associated with EVs are likely to benefit from further leadership from Biden. Those include Tesla, Ford, and smaller companies like Rivian.
And during President Trump’s first term, private prison stock prices soared as he expanded incarceration and increased revenue.
Prison giants include CoreCivic and GEO Group. In 2016, CoreCivic’s stock price rose 43% in one day following Trump’s election victory. During the campaign, his rival, Hillary Clinton, said she would end federal contracts with private prisons.
Brett Kenwell, an investment analyst at eToro, agrees that the S&P 500’s performance this year suggests Biden will be reelected, but he has concerns.
“This graph is convincing,” he said, but added that he was hesitant to draw conclusions “without a crystal ball.”
“Stock prices have performed relatively well this year on the back of business results that mostly exceeded expectations.” us economysolid earnings outlook and expectations FRB “We will likely lower interest rates in 2024.”
Inflation is eroding the purchasing power of most Americans, which could bode well for Donald Trump. He was photographed leaving the White House with Melania in January 2021.
After Trump won the November 2016 election, private prison occupancy increased. Pictured is Otay Mesa Detention Center, an ICE detention center owned and operated by CoreCivic.
A second Biden presidency will likely improve the outlook and valuation of electric vehicle stocks. President Joe Biden stands next to an electric Ford Mustang Mach-E during a visit to the 2022 Detroit Auto Show.
Nevertheless, Kenwell suggested there is still plenty of time to change things. “We are aware that some unknown developments may occur between now and November,” he added.
Peter Gallagher, managing director of Unified Retirement Planning Group in New York, said 2024 was somewhat different than many previous election years.
“The inflation problem in the United States is still not completely resolved,” he said. As a result, inflation has gradually reduced Americans’ purchasing power and overall consumer confidence has declined.
“Even my affluent clients have a higher cost of living and how much more expensive it is to fill up a gas tank than it was five years ago,” he said.
“If I’m going to poll my clients, I wouldn’t necessarily use the trend of the S&P 500 as a litmus test, because they don’t necessarily care that much about the trend of the S&P 500 index. It will be your living expenses.
