Can Stocks Predict The Next President?

Commentary

By RYAN DETRICK

“Prediction is very difficult, especially if it’s about the future.” Niels Bohr, A Danish physicist who won the Nobel Prize in Physics in 1922

Hardly a day goes by that we don’t get a question regarding the upcoming U.S. presidential election. Although we don’t pretend to have any special knowledge about which party will win the next presidency, it does appear that the S&P 500 Index could be one place to look for clues.

President Trump winning in 2016 caught many off guard, but maybe the weakness in stocks heading into the election was a signal of a new party in power. History shows that stocks’ performance in the three months before an election could predict which party will win. In fact, stocks have been right for nearly 40 years.

As shown in the LPL Chart of the Day, S&P 500 Index Performance 3 Months Before A Presidential Election, if the S&P 500 is green the three months before the election, the incumbent party tends to stay in the White House. If stocks are down, though (like they were in 2016), this potentially could signal a change in power in the White House. The track record isn’t perfect, but in 20 out of the past 23 elections, stocks have been correct.

What will happen in 2020? We still have nearly 16 months to speculate, but stocks might give us an advance clue for who will win in November 2020.

This Research material was prepared by LPL Financial, LLC.