(21 August 2020) Did you know that the stock market has correctly predicted who would win each of the US presidential elections since 1984? More specifically, the performance of the S&P 500 Index on the eve of the election compared to its value three months prior has aligned 100% with each election outcome for the last nine presidential elections. Here's the rub - while the S&P 500 Index predicts the election results nobody can predict the index. 

 

The current S&P 500 Index suggests President Trump is poised for a re-election win despite Biden's commanding advantage in the polls, and yet this is not 1984, 1996, 2016 or any other of the prior nine. 2020 is a year unlike any other. Considering the high degree of uncertainty about the future US economic recovery and existing market volatility, a reversal of trends in the markets within the next three months to then favor Biden would hardly come as a surprise.

  • $3 trillion of anti-covid stimulus from US Federal Reserve and another $3 trillion stimulus package from US Government gave markets a boost in the period from April to July 2020. But, it's unclear how prolonged this effect will be given the current stalemate over fresh stimulus.
  • Should the S&P 500 Index prevail again to predict the victor for the 2020 election, history tells us that the prophecy will very likely materialize only minutes before election day.  

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