US stock market calls Donald Trump win; this indicator has predicted all White House races since 1984

By: |
October 20, 2020 4:40 PM

Currently, since the beginning of August till Friday evening, S&P 500 has gained from 3,288 points to sit with 3,427 points. Sensex too has gained since August.

Donald Trump

As the United States of America gears up for Presidential elections for the 59th time in its history, incumbent Donald Trump and his challenger former Vice President Joe Biden are battling it out to convince voters who would be better placed to steer Uncle Sam out of the coronavirus aided economic slump. While opinion polls are not always the best way to measure who leads the elections, another indicator, the S&P 500 index, has made it quite clear who will sit in the Oval Office next year.

And the winner is….

A recent report by Clearbridge Investments, a global investment manager, highlighted that the market has correctly predicted every election since 1984 and 86% of the time since 1936. “In the three months before the election, stocks have historically fallen ahead of a change in party, and rallied when the incumbent retained the White House,” Clearbridge Investments said. Data since 1988 shows that whenever the incumbent party has retained the White House, S&P 500 has gained between August and October, the three months prior to the election. Currently this trend hints at a Doanld Trump victory.

In 1988 when Republican H W Bush won the Presidential election, succeeding his party colleague Ronald Reagan, S&P 500 gained from 272 to 278 points. In 1992 when Democratic candidate Bill Clinton won the White House, S&P 500 had gone from 424 to 418 between August and October. Similarly when Clinton retained his position in 1996, S&P 500 went from 639 points in August to 705 points at the end of October. 

The trend is mirrored by domestic benchmark index S&P BSE Sensex since 2000. At the time of Republican G W Bush snatching the White House away from Democrats, Sensex slipped from 4,295 points in August 2000 to 3,492 points in October. At the ouster of Republicans in 2008 when Barack Obama became the 44th US President, Sensex had fallen from 14,064 points in August to 9,788 points at the end of October that year. Following the same trajectory, Sensex moved higher in 2012 when Obama managed to retain the White House and fell in the three months prior to the election in 2016 when Donald Trump became the 45th US President.

Currently, since the beginning of August till Friday evening, S&P 500 has gained from 3,288 points to sit with 3,427 points. Sensex too has gained since August when it was at 37,595 to closing 40,500 mark today, hinting at a Donald Trump win in the US election.

Impact on Asian markets

US-based investment firm Invesco’s Global Market Strategist, Asia Pacific ex-Japan, David Chao, earlier last month said that volatility is expected to rise ahead of the elections but after that APAC markets could move higher. “I expect EM Asia equities to strengthen from current levels into the year-end as the election overhang is removed and investors refocus on fundamentals, such as an improving economy and likely COVID-19 vaccine in 2021,” he said. Global investment bank UBS had earlier chalked out three possible outcomes of the elections and the likely gainers from these. “India, Indonesia and Singapore come out positively in two of the three scenarios, without being relatively negatively affected in the third,” UBS had said in a note.

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