Six months before the presidential election, hidden in the stock market there may be clues about who will occupy the White House in January.
Historically, the state of the U.S. economy in the run-up to an election has been strongly correlated with how the country votes.
Investors often look for patterns of how markets have performed in the past to predict what might happen in the future.
An analysis of the returns of the S&P 500 over the past 90 years reveals that in election years in which the incumbent president is re-elected, economic growth is strong beforehand.
On the contrary, when the current president loses, America’s largest companies appear to be losing steam, sowing seeds of doubt about the country’s economy and leadership.
This year, the S&P 500 has performed similarly to how it has historically when the incumbent president was re-elected to a second term.
A growing economy could inspire confidence in Biden’s leadership before the election, but the issue of persistent inflation could derail it.
Therefore, the performance of the S&P 500 index this year may shed some light on who will win the November election, when incumbent President Joe Biden will be challenged for a second term by Donald Trump.
It is currently pointing to a Biden victory as it has risen more than 5 percent in just four months.
‘This specific indicator [the stock market] “It’s in line with the average trend of incumbent wins,” said Courtney Gelman, managing director at brokerage Strategas, which published the research.
He added: ‘But I would like to point out that we analyzed several economic, market and other factors for the elections.
‘Some of them, like this graph and the fact that the United States has avoided a recession to date, look positive for Biden’s re-election.
‘While others, such as disposable income growth and Biden’s approval rating, appear negative.
“We will be monitoring those indicators, along with others such as the misery index (inflation rate and unemployment rate)… and the performance of the S&P 500 over the three-month period leading up to the election as we head into November.” .
He also said they would track the price of stocks linked to Trump or Biden.
For example, thanks to Biden’s support for electric cars, stocks of companies that make or are related to electric vehicles will likely benefit from Biden’s additional leadership. These include Tesla, Ford and smaller companies like Rivian.
And during Trump’s first term, private prison stock prices soared as Trump expanded incarceration and caused his profits to soar.
Prison giants include CoreCivic and GEO Group. In 2016, Trump’s election victory sent CoreCivic shares up 43 percent in one day. During the race, rival candidate Hillary Clinton had said she would end federal contracts with private prisons.
Bret Kenwell, an investment analyst at eToro, agreed that the S&P 500’s performance this year also pointed to another Biden term, but expressed concern.
“The graph is compelling,” he said, but added that “without a crystal ball” he was hesitant to draw conclusions.
“This year, stocks have performed relatively well thanks to mostly better-than-expected returns. American economyStrong earnings outlook and expectations the Federal Reserve will cut interest rates sometime in 2024,” he said.
Inflation is eroding the purchasing power of most Americans, which potentially bodes well for Donald Trump. He is shown leaving the White House with Melania in January 2021.
Private prison stocks rebounded when Trump won the election in November 2016. Pictured is the Otay Mesa Detention Center, an ICE detention facility owned and operated by CoreCivic.
Another Biden presidency is likely to boost the prospects and valuation of electric car stocks. President Joe Biden stands next to an electric Ford Mustang Mach-E during a visit to the Detroit Auto Show in 2022
However, Kenwell suggested there is still plenty of time for things to change. “We know there could be several unknown developments between now and November,” he added.
Peter Gallagher, managing director of Unified Retirement Planning Group in New York, said 2024 has been somewhat different from many previous election years.
“The problem of inflation in the United States has not completely disappeared,” he said. As a result, with inflation eroding Americans’ purchasing power, overall consumer confidence is low.
“Even my wealthiest clients are more interested in the cost of living and how much more it costs them to fill up their gas tank than it was five years ago,” he said.
‘If I were to survey my clients, a good litmus test wouldn’t necessarily be to know how the S&P 500 is doing, because they don’t necessarily pay as much attention to that. It would simply be the cost of living.
