Wall Street executives, political gamblers and cryptocurrency traders are piling up their bets that former President Donald Trump is returning to the White House.
But the stock market may be telling a different story.
U.S. stocks have been on a tear, with the bellwether S&P 500 index climbing more than 10 percent since August. While the stock market is not necessarily representative of the broader economy, the S&P 500’s performance in the run-up to Election Day has historically been a strong indicator of whether the incumbent party’s candidate will retain control of the White House — correctly forecasting all but four presidential races over the last 96 years.
If the index is falling, the theory goes, investors are bracing for more uncertainty from a new administration. But a climb in the S&P 500 signals that the market is expecting the current president’s party to win. And the index’s recent rise is suggesting that Vice President Kamala Harris, who took over the Democratic ticket from President Joe Biden this summer, could be bound for victory.
“The market’s making a call for Harris to win,” said Adam Turnquist, chief technical strategist at the financial services company LPL Financial, which has compiled data on elections and stock prices. “When there’s more certainty about the incumbent party winning the White House, we know for the most part the policies they’ve [installed]. There’s just a level of comfort that the market has with that certainty.”
Voters are clamoring for any hints of clarity about the neck-and-neck presidential race. That’s led to a surge of attention not only on public opinion polls but also on election-betting markets — which are leaning toward Trump — and just about any other indicator of who will prevail, from the “Redskins Rule” and the World Series to the Dow Jones Industrial Average and the S&P 500.
“People are just naturally going to feel anxiety,” said Justin Grimmer, a public policy professor at Stanford University. “All of these things, I think, are ways for people to try to relieve this anxiety they have about this election.”
To be certain, there are plenty of doubters on Wall Street about the S&P 500’s predictive power. Monica Guerra, head of U.S. policy at Morgan Stanley Wealth Management, told POLITICO that the market is no “crystal ball.” The S&P steadily climbed throughout the year, often from gains recorded by a handful of tech giants or news on the Federal Reserve’s fight against inflation — and not likely on election developments. Trump, for his part, has regularly claimed credit for the stock market’s gains, saying investors believe that his return to power would boost share prices even more.
But the index, which tracks the stock performance of the largest public companies trading in the U.S., has proved prescient about the presidency. Effectively, if it climbs in the three months before polls close, the candidate from the incumbent party tends to win. If the index falls, the incumbent party loses, LPL Financial says.
Data collected by LPL shows the index has gotten the election right in 20 of the last 24 presidential contests, including in 2016, when Trump’s win shocked the world. The index, according to LPL, fell 2.3 percent leading up to Election Day — indicating that a change in the White House was looming.
“You were laughed at for even thinking about it,” Turnquist said of Trump’s victory. “But the market was right.”
The S&P 500, however, is not a perfect forecasting tool. The index’s movements in 2020 indicated that Trump was likely to win a second term over President Joe Biden. And this year, many on Wall Street are once again wagering that he will soon return to power.
“The inside of the market is very convinced Trump is going to win,” billionaire investor Stanley Druckenmiller said on Bloomberg Television, citing bank stocks, crypto prices and the GOP candidate’s social media venture, Trump Media & Technology Group, which could benefit from a Trump victory.
Trump Media has seen its share price jump more than 200 percent since bottoming out last month.
Other stocks that could get a boost from a Trump presidency are climbing, too. In a recent research report, Morgan Stanley noted that a basket of investment products tracking industries that may see a windfall from a Republican win had outperformed the Democratic basket by 10 percent over the year. The Republican basket tracks energy companies, banks and crypto firms, among others.
“Part of the reason why we have conflicting indicators right now is because of how divided the electorate is and how tight it is in these swing states,” said Guerra. “This is a true toss-up. You can see that dynamic play out both in the markets and the economy.”
Asked for comment, Karoline Leavitt, national press secretary for the Trump campaign, said the former president “continues to dominate in poll after poll.”
“Republicans have made massive voter registration gains, and we are far outperforming in our share of the early vote relative to two or four years ago across all battleground states,” Leavitt said in a statement. “Voters know that Kamala Harris has destroyed our country, but President Trump will fix it — and that is why he is well-positioned for victory on November 5.”
Spokespeople for the Harris campaign did not respond to a request for comment.
Reena Aggarwal, a finance professor at Georgetown University, is another skeptic. She says the stock indexes of today are even less representative of the economy than they were in decades past since their gains are now largely fueled by Silicon Valley businesses. And there are many more major private companies now that don’t trade on stock exchanges.
In the past, the market better represented the “broad economy” as industrial and energy giants with vast workforces accounted for a larger part of the index.
“The market and the broader economy — there’s a disconnect,” Aggarwal said.
For Stanford’s Grimmer, the historical correlation between economic indicators and who will win the presidency “clearly” matters — but only to a degree.
There are a lot of patterns in the world that can be found slicing up various data points, he said. And with voters’ views of the economy splintered heading into Election Day, the stock market and the S&P 500 may not be the most useful in deciphering who will ultimately be elected.
“You can only use history so much,” Grimmer said. “We’re just going to have to wait and find out. It’s a coin flip.”