According to CNBC, the performance of the stock market between July and October is a good predictor of the next president to win the White House. And according to CNBC, this year that means the Election Day win will go to Republican nominee Donald Trump.
CFRA Chief investment strategist Sam Stovall says that the decline in the market is a bad indicator for the incumbent party, which historically has been a predicting factor for the outcome of elections. The S&P 500 is down 2.2 percent since closing on July 29 at 2,173, which was the last closing day of July.
Stovall told CNBC:
‘Going back to World War II, the S&P 500 performance between July 31 and Oct. 31 has accurately predicted a challenger victory 86 percent of the time when the stock market performance has been negative.’
The exception to this was in 1956, when Adlai Stevenson ran against President Dwight D. Eisenhower. Stovall noted, however, that the military action over the Suez Canal in Egypt with the combined forces of Britain, France, and Israel, as well as a revolution in Hungary, probably affected the election that year.
According to Stovall:
‘This time around if the Democrats retain the White House, I will come up with two responses. One is that history is a guide but never gospel, and two, the negative performance by the market could be a reflection of the worry of domination that a Democratic sweep would bring.’
One of the factors affecting the market is the majority in the House of Representatives, and CNBC reports that the market reflects concerns over a Democratic takeover of the House. FBI Director James Comey’s announcement that there will be further investigation into the emails of Democratic nominee Hillary Clinton, however, has changed those concerns. According to CNBC, Clinton currently holds a six-point lead in the national presidential election.
Stovall said that since World War II, when the market was higher during those final months leading up to Election Day, the incumbent party won the white house over 80 percent of the time. Exceptions have been when there was a third-party candidate challenging the major parties, including George Wallace in 1968, John Anderson in 1980, and in 2016, Libertarian Gary Johnson.
Even though the probability of a Clinton win has been reduced after the James Comey letter to Congress, Clinton still is expected to beat Donald Trump in the general election. Nate Silver’s FiveThirtyEight has her chances at 74.3 percent, and Donald Trump at 25.6 percent. This is a significant rise for Trump, who was barely at 12 percent only a week ago; however, the margin isn’t slim enough for him to overtake the Clinton lead in the next seven days.
The head of policy research for Strategas, Daniel Clifton, believes that the latest news about further investigation into the emails of Clinton staffers may not affect the White House win, but perhaps may affect the down-ticket congressional races.
Clifton also noted the affect the market trends have had on election wins, and said that since 1984, when stock market performance is down in the three months prior to the Election Day, the incumbent party fails to retake the White House. The S&P 500 is currently down 2.5 percent since the beginning of August.
Referencing James Comey’s “October Surprise,” Clifton told CNBC:
‘We’ve now gotten this black swan event on Friday. It may have impact, it may not have any impact.’
Clifton also noted that Clinton’s landslide may simply not happen, and she may win by less than expected. He also noted that the stock market generally rallies and goes up in the week prior to Election Day.
Stovall told CNBC:
‘I would say on face value it’s saying prepare to be surprised on Tuesday.’
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