Presidential Election Prediction: Does the Stock Market Hold the Key?
In the aftermath of the latest presidential debate between Vice President Kamala Harris and former President Donald Trump, election polls are in the spotlight. However, did you know that the stock market may be a more reliable indicator of who will win the election?
The Unreliability of Election Polls
Election polls have a spotty track record of accuracy. In a 2023 examination of hundreds of U.S. election polls dating back to 1998, FiveThirtyEight senior elections analyst Nathaniel Rakich found that pollsters only accurately predicted the winner 78% of the time. In 2022, they predicted just 72% of races.
The Stock Market’s Accurate Predictions
On the other hand, the S&P 500’s performance between August and October has accurately predicted the winner of every presidential election since 1984. When the blue-chip index rises between August and October, the incumbent party has won every time. Conversely, when the S&P 500 falls over that period, it has signaled an impending victory for the challenger.
Economic Sentiment and Stock Prices
Comerica Bank’s chief investment officer John Lynch and senior analyst Matthew Anderson believe that the correlation between stock prices and election outcomes can be attributed to broader economic sentiment. "Equity performance reflects broader economic sentiment," they wrote. "When voters are satisfied with the economy’s direction, they tend to support the status quo, and when they are dissatisfied, they are more inclined to vote for change."
The Misery Index: Another Election Predictor Worth Watching
With Lynch and Anderson pointing to broader economic sentiment as a key factor, there’s another election predictor worth watching: the Misery Index. The Misery Index combines the seasonally adjusted unemployment rate and the annual inflation rate into a single measure, attempting to gauge the economic pain that average Americans are feeling. A higher number signals consumers are struggling with rising prices and finding jobs, leading to more economic "misery."
The Misery Index and Presidential Elections
The three-month moving average of the Misery Index between August and October has accurately predicted every presidential election since 1980. The incumbent party has won if the index decreases, and lost if it increases.
Conclusion
While election polls may not be the most reliable indicator of who will win the presidency, the stock market’s performance between August and October has proven to be a more accurate predictor. The Misery Index, which combines unemployment and inflation rates, is another valuable indicator that can give us insight into the outcome of the election.
FAQs
Q: How accurate are election polls?
A: Election polls have a spotty track record of accuracy, with pollsters accurately predicting the winner only 78% of the time.
Q: How does the stock market’s performance predict presidential elections?
A: The S&P 500’s performance between August and October has accurately predicted the winner of every presidential election since 1984. When the index rises, the incumbent party wins, and when it falls, the challenger wins.
Q: What is the Misery Index, and how does it predict presidential elections?
A: The Misery Index combines the seasonally adjusted unemployment rate and the annual inflation rate into a single measure. The three-month moving average of the Misery Index between August and October has accurately predicted every presidential election since 1980.
Q: Can I use the Misery Index to predict the outcome of the next presidential election?
A: Yes, you can use the Misery Index to gain insight into the outcome of the next presidential election. The latest Misery Index reading came in at 6.73% in August, indicating that consumers are still struggling with rising prices and finding jobs. However, it’s essential to note that the Misery Index is just one indicator and should be used in conjunction with other economic and political indicators.
Author: fortune.com
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