The stock market can give us a lot of information. The shorts can inform us that trouble is brewing in pockets of the equities arena. Rising commodity prices can tell us that the fundamentals are shifting. A stock that skyrockets to astronomical levels can highlight one of two things: This is the greatest company in the world, or a bubble is swelling. But presidential elections? While pundits can provide their take on who will come out victorious on Election Day, the data might give the public a better idea of the outcome. Right now, the power players on Wall Street are looking to the S&P 500.
What Does Wall Street Think?
The stock market is joining the rest of the polls in predicting a victory for Joe Biden. According to a CNBC Global CFO Council Survey, 75% of chief financial officers anticipate Biden winning in November. A separate CNBC poll of 20 stock strategists found that more than half are predicting a Biden victory in the fall. JPMorgan Chase is bucking the trend by urging investors to get ready for rising odds of Trump’s re-election. The options market is preparing for no clear election winner as it is pricing in hysteria on Election Day.
A History of the S&P 500
The financial markets just finished the hottest August in two decades. The S&P 500 and the Nasdaq Composite Index surged to all-time highs, while the Dow Jones Industrial Average wiped out its losses this year. But the August spike could prove to be a valuable indicator for the 2020 election.
In a research note to clients, BTIG’s chief equity and derivatives strategist Julian Emanuel wrote that a strong August could bode well for the incumbent based on the outcome of every election since 1984.
“At first glance, August strength plays well into Donald Trump’s reelection — in the three months prior to November elections, positive S&P 500 returns have accompanied incumbent party presidential victories 85.7% of the time,” he said, adding that the incumbent party has lost the White House when the S&P 500 is down from the end of August to the election.
Others agree, including LPL Financial. The investment and wealth management firm believes the stock market maintains a solid track record of predicting the winner of the presidential election. The company noted that the S&P 500 maintains an accuracy rate of 87% since 1928 and 100% since 1984. What were the three elections that the index got wrong?
President Dwight D. Eisenhower secured his re-election bid in 1956, despite the index slumping more than 3% in the three months heading into the election. Incumbent Vice President Hubert Humphrey was defeated by Richard Nixon in 1968, although the S&P 500 rose 6% from August to November. The S&P 500 surged nearly 7% in the three months before the 1980 election, but then-President Jimmy Carter fell to Ronald Reagan.
And, of course, as LPL Financial’s Ryan Detrick points out: “2020 hasn’t been normal at all, but could there be some usual pre-election jitters?”
Is the S&P 500 poised for another record-breaking month? While everyone’s favorite index is climbing, fear gauges for the S&P 500, as well as the Nasdaq, advanced in tandem. For the first time since – you guessed it – the dot-com bubble, the Cboe Volatility Index (VIX) surged more than 5% as the S&P rallied 1% during the Aug. 26 session. When this happens, stocks typically slump a median 1.2% in September, which would not bode well, based on past data, for President Trump.
All About the Polls
As Liberty Nation’s Managing Editor Mark Angelides recently reported, some of the latest polling suggests President Trump and Biden are neck and neck. The betting markets are highlighting a close contest, and even the swing state odds appear split. Wall Street analysts are a bit more confident in Biden’s chances, but the broader market is as convinced in a Trump win, especially after it accurately forecast Trump’s unlikely 2016 victory. Because of how crazy the race is shaping up to be, it is too bad that investors cannot short November and bankrupt the circus.
Read more from Andrew Moran.