In the past few weeks, we’ve seen huge moves on both the political and financial fronts.
While these two jumps may appear to be unrelated on the surface, there may be some correlation between the two.
As we’ve noted before, the S&P 500 has been a pretty reliable indicator of who is going to win the White House. In 19 of the past 22 elections, if the stock market was up in the three months before the election, the incumbent party won. If it was down, a new party took over the Presidency.
According to a note from Bespoke Investment Group, the correlation is holding up so far. Recently, the Betfair odds of a Clinton presidency have reached new highs at a roughly 75% chance. The past two times this has happened, according to Bespoke, the higher odds haven’t lasted long.
“That being said, the odds for Clinton to win in November have really rallied in the last several days and are back near their highs of the year at slightly more than 75%,” said a note from Bespoke.
“In each of the prior times where Clinton’s odds (late April and late June) have approached current levels, they have quickly pulled back.”
This time around, however, the recent all-time highs for stocks may provide the chance for Clinton to break out. Here’s Bespoke again:
“It is often noted that a strong stock market and a good economy are good for the incumbent party, so with the S&P 500 at new highs and jobs data coming in strong for the second straight month, will this be the leg where Clinton finally breaks out or are her odds due for another pullback? We’ll soon find out!”
The thinking is that if the economy and stock market are doing well, voters will likely want a continuation of the current policy. Therefore, strong economic and market data will favour Clinton, while any slippage will benefit her opponent Republican nominee Donald Trump (or, technically, a third party candidate).
Granted, we’re just now entering the three-month predictive window for the S&P 500, but so far it appears to be favouring Clinton as much as the polling average.
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