Is S&P 500 signalling a Kamala Harris win in 2024 US presidential election?

US Presidential Elections 2024: While Vice President Kamala Harris and former President Donald Trump are in a tight race in the US presidential polls, the former has an advantage if stock market performance is an indication.

“The incumbent party wins if stocks are up, and vice versa,” asserts LPL Financial. An analysis by the financial services firm reveals that since 1928, the S&P 500 has accurately predicted the winner in 20 out of 24 presidential elections.

In the November 5 US presidential polls, Vice President and Democratic nominee Harris and former President and Republican nominee Donald Trump are running neck and neck in what many observers believe could be the closest election in decades. But what does the US Stock market predict?

Recent Trends in US Market Performance

When US stocks rise in the three months leading up to election day, the incumbent party has retained the White House 12 out of 15 times, LPL Financial's report reads. Conversely, the party in power has lost eight out of the last nine elections when the market was down during this critical period.

The S&P 500 has risen over 12 per cent since August 5, indicating a positive trend that is likely to favour Democratic candidate Kamala Harris ahead of the November 5 vote.

“The index is up more than 12% since Aug. 5, which coincidentally was the date the S&P suffered its worst loss in 23 months as recession fears overtook Wall Street, a selloff Harris detractors deemed the “Kamala crash” despite the weak-at-best correlation between the losses and the Democratic candidate,” reads a report by Forbes.

October: A Crucial Month for US Govt Incumbents

Historical data from 1950 to 2023 indicates that the S&P 500 typically does not perform exceptionally well in the 90 days before Election Day. The average returns for August, September, and October reveal a pattern, as calculated by money.com:

August: -0.20 per cent

September: -0.87 per cent

October: +0.75 per cent

LPL Financial notes that strong stock performance in the lead-up to US elections has correlated with the incumbent party winning 80 per cent of the time since 1928.

Market Sentiment and Election Insights

The LPL Financial report further emphasises that US stocks have a reliable track record of predicting US presidential election outcomes. Based on the S&P 500’s performance since August 5, there is a growing belief that Vice President Kamala Harris, as the incumbent candidate, is well-positioned ahead of the election.

“Stocks seem to sniff out the potential for change, with stocks down 2.2% in October when the incumbent party loses compared to a 0.8% average gain in October when the incumbent wins," the report reads.

"If October is down more than a fraction, the incumbent party has lost eight out of nine times since 1952, with President Obama in 2012 the only incumbent to survive a more than marginally negative October (-2.0%), with stocks being up big through September that year (+14.5%) providing a mitigating tailwind,” LPL Financial report notes.

US Polls 2024: Notable Exceptions to the Rule

LPL Financial identifies four notable anomalies where the stock market did not align with election outcomes:

1956: President Eisenhower secured re-election despite a -3.2% drop in the S&P 500, buoyed by a high approval rating based on economic stability.

1968: President Nixon narrowly defeated Vice President Humphrey, with the S&P 500 gaining 6 per cent in the lead-up to the election, amidst a complex political landscape.

1980: President Reagan’s victory over Carter came despite ongoing economic challenges, with the stock market rising 6.9 per cent before the election.

2020: Following a pandemic-induced bear market, the S&P 500 increased by 2.3 per cent, but Trump’s low approval ratings ultimately determined the election’s outcome.

Public Perception: Economy vs Stock Market

Despite the positive stock performance, a recent Associated Press-NORC poll shows that 62 per cent of registered voters view the economy as "bad." This sentiment is prevalent among Republicans and independents alike.

However, there is a shift in confidence towards the Democrats' ability to manage economic issues, diminishing Trump’s previous advantage.

Voter dissatisfaction stems largely from persistent inflation and high prices. Although inflation has recently dropped to 2.4 per cent, many consumers feel the pinch of rising living costs.

From January 2021 to June 2023, prices surged approximately 20 per cent, while wages increased by only 17.4 per cent, according to an Al Jazeera report quoting Bankrate’s analysis of Department of Labor statistics.

While wages have outpaced inflation since mid-2023, the Al Jazeera report quoting Bankrate projects that wage growth may not fully bridge the post-pandemic gap until the second quarter of 2025.