From Ryan McQueeney: The stock market has been reacting to the latest election news for months, and investors have consistently initiated sell-offs whenever Donald Trump gained momentum. However, despite the market’s perceived safety of a Clinton presidency, the recent performance of the market may just indicate that Trump is heading for victory.
According to Sam Stovall, a market expert at CFRA Research who recently spoke to CNN Money, the performance of the U.S. market between August 1 and October 31 of an election year is an incredibly reliable predictor of who winds up winning the presidential race.
In short, Stovall’s theory is that if the market rises during these three months, it favors the incumbent party, but if markets fall, it favors the challenger. This has been correct in 15 of the last 18 presidential elections, and with the S&P 500 down about 2% since August 1, this predictor would indicate that Trump is positioned for success.
Of course, this year’s election has certainly been unique, and Donald Trump is inherently a unique candidate. As mentioned before, investors have seemed to prefer the stability and predictability of a Clinton presidency over what seems to be an uncertain Trump administration.
Additionally, there are other predictive theories that point to Clinton as the victor in the upcoming election. For example, a model run by Moody’s Analytics that factors in the relative strength of the economy and the incumbent’s approval rating has been predicting a Democratic victory since last August, according to CNN Money.
The latest election-related move in the markets came on Friday after the FBI announced it was reopening its investigation into Hillary Clinton’s emails. The announcement caused markets to slump because, as we’ve mentioned, investors would prefer a Clinton triumph.
In my personal opinion, any predictive theories are basically useless right now. This presidential election will go down as one that re-wrote the rules. Absolutely no one could have predicted that Trump would be where he is, and even the Democratic challenge by Bernie Sanders was much greater than expected.
Investors definitely prefer a Clinton win, but the race still seems too close to call.
The SPDR S&P 500 ETF Trust (NYSE:SPY) fell $0.66 (-0.31%) to $210.35 per share in premarket trading Wednesday. Year-to-date, the largest ETF tracking the benchmark S&P 500 index has gained 3.5%.
This article is brought to you courtesy of Zacks Research.