Presidential Predictor

Can the financial markets give a clue as to whether the incumbent or challenger has the better chance of winning a Presidential election? The answer is: probably!

Financial blog Zero Hedge published a study this week that showed that market performance in the 3 months leading up to a Presidential Election has displayed “an uncanny ability to forecast who will win the White House”. Since 1928 there have been 22 elections.  In 14 of them, the S&P 500 index was up during the 3 months prior to the election. The incumbent won in 12 of those 14 instances. Conversely, in 7 of the 8 elections where the S&P 500 was down in the 3 months prior to the election, the incumbent party lost.

The market has thus been correct 86.4% of the time in forecasting the election. With the S&P 500 down about -4% in the last 3 months, this measure says the incumbents – the Democrats – will lose.

But we’ll just have to wait to see.