Trump Or Biden? The Stock Market Offers A Clue

If the stock market is any indicator, Democratic challenger Joe Biden looks more sure-footed than President Donald Trump a day ahead of the election. A slight fall in the S&P 500 in the three months preceding the election day could be a reflection of investor uncertainty about the continuity of federal policies, analysts say.

Research house CFRA’s Presidential Predictor uses historical data since World War II to interpret a 0.04% dip in the S&P 500 between July 31 and Oct. 31 as a favourable sign for Biden. Whenever the index fell in those three months of an election year, the incumbent president has lost the election 88% of the time. The lone exception was in 1956 when Dwight Eisenhower was reelected. In election years when the S&P 500 rose, the incumbent has won 82% of the time.

“This year, the Predictor closed ever so slightly in the red during this three-month period, implying but not guaranteeing that Biden will emerge victorious,” Sam Stoval, CFRA’s chief investment strategist, was quoted as saying by CNN.

The decline this year may be razor-thin, but it still indicates Biden could become the next president. In 2000, when George W Bush wrested the White House from the Democrats, S&P 500 was down just 0.1% in the preceding three months, Fortune reported.

But this year's market decline can also be attributed to the COVID-19 pandemic, making it a not-so-strong pointer to a Biden win.

To be clear, there is no direct link between the S&P index and the election results, but markets are generally wary of uncertainty.

And CFRA’s prediction gains weight because it also aligns with Wall Street's view, according to The Wall Street Journal. Goldman Sachs analysts expect Democrats to regain control of the White House and the Senate and retain their control of the House of Representatives. They also believe it is good for the markets.

Goldman Sachs, in its report last month, said a Democrat sweep would “sharply raise the probability” of a stimulus package of at least $2 trillion after the inauguration in January. This, along with Biden’s long-term policies about climate, health care and education, may bring good news for the market.

JPMorgan Chase experts also forecast a Biden win. "A blue wave or Democratic control of the House, Senate and White House would produce the largest changes in policy, but if Republicans retain the Senate or White House, limited new federal policies, fiscal or otherwise, are expected until at least the 2022 Congressional elections,” said Mike Feroli, chief U.S. economist at JPMorgan, in a report released last week.