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S&P 500 best predictor of US presidential race

One of the institutions with the best track record in calling presidential races, is the US stock market. The signals it is currently emitting should be of some concern to Democrat Hillary Clinton.

Published: November 2, 2016, 6:02 pm

    New York

    The performance of the S&P 500 Index has predicted the outcome of every presidential election since 1984, according to an analysis by Strategas Research Partners LLC.

    As Bloomberg reports, an increase in the benchmark for American equity in the three months prior to the vote, has seen the incumbent party – in this case the Dems – win 86 percent of the time since 1928. Right now, the benchmark gauge is down 3.6 percent since Aug. 8 with voting starting in a week.

    Aside from the three-month interval, the S&P 500 fell on Tuesday by the most in three weeks, slipping for a sixth day to 2,111.72, making its first foray below 2,100 since July 7 before rebounding. It represents the longest slide since August 2015 amid polls showing the race for the White House narrowing, and augurs well for Donald Trump.

    The banking sector is also the industry most closely tied to the election and favors Trump, according to analysis by Bloomberg. The S&P 500 Investment Banking and Brokerage index has rallied 13 percent in the last three months.

    The CBOE Volatility Index moved sharply on Tuesday by an increase of 9 percent to the highest level since June 27.

    The stock market’s prescience is derived from the fact that it is a gauge of the economy Thus falling shares potentially indicate consumer discontent, a sentiment favouring a challenger or outsider.

    While this year’s signal ranks historically with the weaker ones, it comes amid sluggish growth in gross domestic product, right on the heels of the biggest monthly retreat in consumer confidence in a year.

    But the stimulus applied by the Federal Reserve might have rendered stocks a less reliable signal of economic health than they were in the past.

    In June, when stocks around the world spiked prior to the Brexit referendum, the outcome resulted in a mini crash of sorts, the most it fell in five years, when voters chose to leave the EU. Clinton’s lead has shrunk since news Friday that her emails are again the subject of interest to the FBI, and anxiety has soared.

    US equities led a selloff in riskier assets Tuesday following an ABC News/Washington Post tracking poll that showed Trump with 46 percent support to Clinton’s 45 percent.

    Gold also felt the political heat and surged more than 1 percent, with the dollar weakening against the Swiss franc and Mexico’s peso, considered an inverse proxy for Trump’s election fortunes, tumbled.

    Real estate and utility stocks slid more than 1.7 percent. Apple Inc. dropped 2.1 percent to weigh down the technology group, and Pfizer Inc. lost 2 percent as its quarterly profit fell short of estimates. The Dow Jones Industrial Average lost 105.25 points, or 0.6 percent, to 18,037.17, according to Bloomberg.

    karin@praag.org

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