When it comes to predicting the outcome of any US presidential election, the stock market has a proven track record dating all the way back to World War II.
Even when the polls got it egregiously wrong in 2016, the Standard & Poor’s 500 (S&P 500) managed to get it right — old faithful “knew” Donald Trump would defeat Democratic candidate Hillary Clinton in an upset for the ages. And in 2020, the stock market continued its hot streak by “picking” Joe Biden over sitting President Donald Trump (razor-thin margin and all).
The rule of thumb is as follows: in the three months preceding the election (that’s from August through to the end of October), if the S&P 500’s performance is negative, the incumbent party will be voted out of the White House and replaced by the opposition. If the S&P 500’s numbers are up, the incumbent party will remain in power.
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For those of you asking for the exact science behind the stock market’s “Presidential Predictor,” as much as we’d like to rationalise it and show you the precise working — there simply isn’t any. Many theorise it has something to do with how S&P 500 performance is an accurate gauge for uncertainty, as well as how investors tend to sell when the future is unclear.
We’ve certainly had our fair share of market volatility in recent years given the whole matter of COVID-19, and a widespread sell-off may just signal the people’s lack of faith in a new president.
Though it’s worth noting that negative S&P 500 performance has been on the money when it comes to replacement almost every year since 1928; the sole exception being 1956 when President Dwight Eisenhower shrugged off a 7.7% decline to defeat Adlai Stevenson II.
And as noted by Fortune, a small margin can still be correct. When George W. Bush (R) defeated Al Gore (D) in 2000 and the incumbent party was Democratic, the S&P 500 was down a virtually negligible 0.1%.
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Yet another key indicator of voter sentiment that’s emerged is betting odds. This makes perfect sense considering that, much like the stock market, money tied up in US presidential election results is quite literally on the line.
During the 2024 US Presidential Debate — which has been panned, on a wide number of occasions, as a farcical and concerning showcase of ad hominem attacks, falsities, and straight-up gibberish — the Sportsbet live odds widened in favour of Donald Trump from an already challenging $2.20 versus Joe Biden’s $3.50 to $1.80 vs $4.50, respectively.
Currently, the former head of state is sitting at $1.53 against the reigning Commander-in-Chief’s seemingly insurmountable $7 odds; which is even larger than Vice President Kamala Harris’ $6, despite the fact she isn’t even an official candidate for the top job (at this stage).
Again, this is by no means a concrete guarantee. Lest we forget the 2019 Australian federal election, wherein the bookmaker paid out bets on the Labor Party’s Bill Shorten two whole days before Aussies headed to the polls, resulting in losses in excess of $5 million.
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