One predictor of presidential campaigns has been accurate 88% for nearly a century: the S&P 500. According to Fortune, since 1928, a three-month decline in the stock index prior to a presidential election means the incumbent party loses the White House.
Well, the S&P has spoken, and it’s not good news for Donald Trump.
Over the past three months, the S&P 500 fell a net 0.6% from August through October, making the “presidential predictor,” as its known, signaling a switch in the White House.
The presidential predictor has been wrong just one: 1956, when the S&P saw a 7.7% decrease, but the incumbent, Dwight D. Eisenhower handily beat challenger Adlai Stevenson. Even in 2016, when Hillary Clinton won the popular vote by 2% but Trump won the Electoral College, the S&P predictor picked Trump due to a 2.2% drop in the index over the previous three months.
There’s no economic law as to why this happens, but there is a market psychology to it: investors like certainty, and a change in administration leads to market uncertainty.