Can Stocks Predict The Election Outcome?

Can Stocks Predict The Election Outcome?

Can stocks predict the election outcome? What about back-to-back bear markets? How big was the stock market drop in dollar terms?  We’ll cover these tidbits and more.

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The stock market was down 34% earlier this year and it made a complete recovery. The recovery was led by a small handful of companies.

As of August 28, almost one-third of the stocks in the S&P 500 are still down at least 20% for the year.

That's a lot of money...

On February 19, the total value of the US stock market was $36.1 trillion. On March 23, at the bear market low, the US stock market was worth $23.4 trillion. $12.7 trillion evaporated into thin air over that timeframe. Most of that has come back, and we’re all glad for it.

can stocks predict election
Can stocks predict the election

Back-to-back bears?

We’re still dealing with this COVID-19 pandemic, and the economy isn’t back to full strength yet. There are some concerns that there will be some lingering effects. One of those concerns is a double-dip recession. The other is another significant drop in the stock market.

Over the last 75 years, the shortest time between the end of one bear market and the beginning of the next is two years and two months. The S&P 500 fell 22% during a bear market which ended on October 7, 1966. The next bear market, an 18 month long tumble of 36%, began on November 29, 1968.

It can happen quickly. Two years is the record. We may or may not see that record tested.

Can the Stock Market Predict The Election?

The S&P 500 was up 7.19% in August. It was the best August ever.

We found this interesting tidbit on the website MarketWatch. This is from Julian Emanuel of institutional investment management firm BTIG. “At first glance, August strength plays well into Donald Trump’s reelection. In the three months prior to November elections, positive S&P 500 returns have accompanied incumbent party presidential victories 85.7% of the time.”

“Going back to 1928, when stocks rose 5% or more in August, and the June to August return was in the top quartile, the market often struggled in September and October. When the S&P 500 was down from the end of August through the election, the incumbent party lost the White House on all six occasions.”

Could the stock market performance over the next couple of months predict the outcome of the election? It will be interesting to see if that comes true or not.

stocks predict election


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About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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