The markets are a sure sign for an incumbent politician in their chance to win re-election. Based on the markets today, President Trump has a very good chance of being re-elected.
Major U.S. stock indexes closed higher Tuesday, ending near or above prior all-time records, as upbeat economic reports and dovish tones from the Fed helped feed the buying momentum on Wall Street.
The ascent for stocks comes despite expectations for a seasonally challenging month for equities, following the best August returns in more than 30 years.
How did stock benchmarks perform?
The Dow Jones Industrial Average (DJIA) rose 215.61 points to end at 28,645.66, or 0.8% higher, the S&P 500 index (SPX) added 26.34 points to close at a record 3,526.65, a gain of 0.8%, after setting an intraday record of 3,528.03; while the Nasdaq Composite Index (COMP) advanced 165.21 points to a record 11,939.67 finish, a rise of 1.1%, after touching a new intraday all-time high of 11,945.72.
These results are great, especially considering the economic crisis that hit in March when the US shut down its markets due to the China coronavirus. This also is good news for President Trump based on a study at the Socionomics Institute which shows that the stock market is the key indicator in elections:
The stock market is a more powerful presidential reelection indicator than GDP, inflation and the unemployment rate combined. That was the key finding of a 2012 paper by our team at the Socionomics Institute.
Specifically, we found that the net percentage change in the stock market in the three years leading up to Election Day had a significant correlation with the incumbent’s margin of victory or defeat. The market’s net percentage changes over the one, two and four years prior to the election were weaker, but still significant, reelection indicators.
Our study examined every presidential reelection bid going back to George Washington’s run for a second term in 1792. Regardless of whether we studied elections from the 18th, 19th, 20th or 21st centuries, the stock market remained a reliable, powerful and significant indicator of presidents’ fates at the ballot box.
You might think that the results indicate that voters vote their pocketbooks — or at least their portfolios. But we found differently. Almost no one owned stocks in the 1700s, 1800s or even early 1900s, yet the stock market remained a reliable reelection indicator. We used Robert Prechter’s socionomic theory to explain our results.
The theory proposes that waves of social mood regulate the ups and downs in the stock market as well as other social attitudes and actions, such as the propensity to retain the leader. As social mood becomes more positive, society sends stock prices higher and becomes more inclined to reelect the leader, and vice versa. Thus social mood, not the stock market per se, regulates society’s inclinations to keep the incumbent or throw the bum out.
The Dow Jones Industrial Average was 23,377 three years prior to Election Day 2020. Applying the above finding to the current election, President Trump will be a mild favorite to win if the Dow is between 23,377 and 28,052 when Americans go to the polls, and he will be a strong favorite if the market is above 28,052. Joe Biden will be a mild favorite to win if the Dow is below 23,377, and he will be a strong favorite if the market is below 22,208.
See below picture from Socionomics Institute: