Do you want to know who will win the United States presidential election? Take a look at the stock market.
Of course, there is no crystal ball to tell us who will prevail on November 5th.
The polls, as much as they can be trusted, show Vice President Kamala Harris and former President Donald Trump running neck and neck in what many observers believe could be the closest election in decades.
Still, the performance of American stocks has an amazing track record of predicting the outcome of presidential elections.
Since 1928, the S&P 500 – which tracks the performance of 500 of the largest publicly traded companies in the United States – has pointed to the winner in 20 of 24 elections, according to an analysis by financial services company LPL Monetary.
When U.S. stocks rose in the three months leading up to Election Day, the party in power held the White House 12 out of 15 times. And the ruling party lost eight of the last nine times the market was in negative territory before the vote.
Not a bad track record as far as forecasting models go.
With less than two weeks until the election, the S&P 500 is up a healthy 11.8 percent since the beginning of August.
Assuming US stocks don't suffer a dramatic drop in the final days of the campaign, the historical trend clearly favors Harris.
However, warnings abound.
Unfortunately for Harris, voters don't seem to associate the strong performance of the stock market with the strong performance of the economy.
While an estimated 61 percent of Americans own stocks, a large segment of voters have no exposure to the market.
In a Related Press-NORC Heart for Public Affairs Analysis poll released this week, 62 percent of registered voters, including overwhelming majorities of Republicans and independents, rated the state of the economy as “bad.”
On the bright side for Harris, voters expressed growing confidence in the Democrat's ability to handle economic problems, suggesting that Trump's once clear advantage on the economy has all but disappeared.
The prevailing pessimism comes even though, by most metrics, including gross domestic product (GDP) growth and the unemployment rate, the U.S. economy is performing at a level that would be the envy of most developed countries.
One of the most plausible and frequently given reasons for the negative sentiment is that consumers are tired of higher prices, despite inflation, which last month fell to 2.4. percent, is now close to the Federal Reserve's target after rising during the COVID-19 pandemic.
While wages have been growing faster than inflation for more than a year, they have not yet grown enough to fully offset the rising cost of living since the pandemic.
While prices rose about 20 percent between January 2021 and June of this year, wages only rose 17.4 percent, according to a Bankrate analysis using Department of Labor statistics.
Although wage growth has continued to outpace inflation since then (reaching 4.2 percent versus 2.6 percent during July-September), Bankrate predicts the post-pandemic gap won't fully close until the second quarter of 2025.
No matter how many positive economic statistics are published to tout the current administration's record, consumers are reminded that prices for everyday items cost considerably more than they used to every time they are at the grocery checkout.
Another good reason to be cautious and not read too much into the predictive powers of the stock market is that we seem to be living in a period of politics that doesn't follow any rulebook.
Just as his 2016 victory shattered numerous precedents, Trump's very place on the Republican ticket, despite four criminal indictments, numerous scandals and years of negative media coverage, defies conventional wisdom.
In fact, the last time the S&P 500 failed to predict who the next occupant of the White House will be was the most recent election.
After presiding over a 2.3 percent market gain, Trump lost to President Joe Biden.
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