Can the S&P 500 Predict the 2024 Election? Testing Market Trends!

The 2024 Presidential Election will be on American soil, so market watchers are joining those political analysts in viewing an unlikely predictor of the election result: the performance of the S&P 500. The performance of the stock market has conventionally been more than a reflection of economic health; rather, it acts like a sort of barometer for the end result of elections. Given its record of predicting the winner of a presidential election, perhaps the more important question many have, since the S&P 500 was up, is whether it will again indicate the winner of the upcoming election.

Key Takeaways:

• The S&P 500 has correctly predicted the winner of a presidential election 83% of the time since 1928.

• The market's performance in the three months before an election consistently and accurately reflected whether the incumbent party would gain or lose control of the presidency.

• Current trends suggest that the S&P 500 has risen 10.52% in the 90 pivotal days before an election, which would suggest the ruling party would be in good shape.

History of S&P 500 Performance.

Coincidence little explains the stock market-electoral outcome phenomenon. Research from LPL Financial Holdings puts the S&P 500 correctly calling the winning party at 20 out of the last 24 elections. In instances when the index has posted a positive return in the three months ahead of an election, the incumbent party has retained the White House 12 out of 15 times. Much as when the market falls, that just about guarantees defeat for the incumbent party.

Take the most recent election cycle, which saw the S&P 500 jump 2.3% in November, despite the string of difficult economic circumstances surrounding it. What this might finally suggest is that market performance can often serve as a very strong leading indicator of voter sentiment and consumer confidence, and therefore speaks to overall economic health in turn.

Current Trends and Predictions.

Analysts presently favor the incumbent party, and the S&P 500 up 10.52% in the 90 days leading into the 2024 election is a sustained stock market rally that usually depicts increased investor confidence and is, speaking from history, a good omen for the party holding the reins.

Market conditions are usually influenced by many factors: inflation, the rate of unemployment, and stability in the global economy. The result is some surprise in the market, which may not allow one to make a very accurate forecast of how precise the S&P 500 will be in predicting the results of this year's election. Besides, recent trends in market positioning appear to diverge between US equities and their European counterparts-a reflection of differing investor risk appetites.

The Bigger Picture.

This election season, the stock market would be more in tune with the pulse of the nation rather than perhaps investor confidence. While the S&P 500 has worked as a pretty decent predictor of presidential elections in years past, it is not perfect, and this election may pose unique challenges and opportunities that could influence voter sentiment regardless of market performance.

Investors and analysts will, for that matter, want to continue monitoring market trends and the shifting political landscape leading up to Election Day.

Conclusion

The S&P 500 has a long history of indicating the likely outcome of elections. Based on its recent performance, it appears that the prospects for the incumbent party are bright, going into the 2024 election. It is, however, in a constantly changing economic climate and with an ever-shifting tide of popular opinion, just one piece in the large mosaic that constitutes the overall result of an election. So, as we settle in to wait for the voters' verdict, let's put in greater context behind the numbers and what they mean for the future of U.S. politics.