Can the stock market predict the outcome of a presidential election–especially one as tight as this?
Historically yes, sort of.
Since 1900, if the S&P 500 posts gains from July 31 to October 31 prior to an election, the incumbent saw a victory 80% of the time, says Sam Stovall, Chief Equity Strategist at S&P Capital IQ, a research firm.
The market’s up for that period now—which could be good for Obama. But it was down for the month of October.
When Stovall ran the numbers on just October market performance, he found that a down market meant bad news for the guy in office—good news for his challenger.
"It’s a coin toss, even according to the stock market,” says Stovall.
But when he tracked the correlation between the candidates' poll numbers and the market, a rising market seemed to favor Obama—at least in terms of voter opinion.
Of course, the stock market doesn’t decide anything, says Stovall. “The market is ‘voting’ on the perception of corporate and earnings growth, not on the candidates.”
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