Wall Street executives, political bettors, and cryptocurrency traders are increasingly wagering on former President Donald Trump’s return to the White House. Yet, the stock market appears to suggest an alternate outcome. The U.S. stock market has surged recently, with the S&P 500 index climbing over 10% since August, an increase that could indicate stability in the current administration rather than a shift in power.
The S&P 500, while not a direct reflection of the broader economy, has historically served as a strong predictor of electoral outcomes. Over the past 96 years, it has accurately forecasted the incumbent party’s success or failure in all but four presidential races. As a general trend, a drop in the S&P 500 before an election hints at investor uncertainty, likely associated with the prospect of a new administration. Conversely, a rise signals stability, which the market often associates with the continuity of the current party in power. Based on the recent rise in the S&P 500, some analysts believe Vice President Kamala Harris, who replaced President Joe Biden on the Democratic ticket, may secure victory.
“The market’s making a call for Harris to win,” says Adam Turnquist, chief technical strategist at LPL Financial, which has studied the correlation between stock movements and election outcomes. “When there’s more certainty about the incumbent party winning the White House, we know for the most part the policies they’ve [installed]. There’s just a level of comfort that the market has with that certainty.”
With the presidential race appearing as a close contest, voters are searching for clarity on the likely winner. This uncertainty has fueled interest not only in public opinion polls but also in election-betting markets and other indicators. Notably, election-betting markets are currently leaning toward Trump, as are other unconventional predictors, like the “Redskins Rule” and the outcome of the World Series.
“People are just naturally going to feel anxiety,” explains Justin Grimmer, a professor of public policy at Stanford University. “All of these things, I think, are ways for people to try to relieve this anxiety they have about this election.”
However, the S&P 500’s reliability as a predictor remains controversial. Monica Guerra, head of U.S. policy at Morgan Stanley Wealth Management, points out that the index is no “crystal ball.” She suggests that the year’s stock market gains may be attributed more to tech companies and the Federal Reserve’s measures against inflation than to election outcomes. Trump has also often credited himself for market gains, arguing that a potential return to office would continue to benefit investors.
Despite these doubts, the S&P 500’s history as a forecasting tool is difficult to ignore. The index, which represents the largest public companies in the U.S., has correctly anticipated the election outcome in 20 of the last 24 contests. For example, in 2016, the index dropped 2.3% before Election Day, reflecting the transition from Democratic to Republican leadership with Trump’s unexpected victory. “You were laughed at for even thinking about it,” Turnquist recalls of Trump’s 2016 win. “But the market was right.”
Nonetheless, the index has not always been accurate. Its performance in 2020 suggested Trump would defeat President Joe Biden. Despite this, many investors remain convinced that Trump is favored to win again in the upcoming election. Billionaire investor Stanley Druckenmiller highlighted this sentiment on Bloomberg Television, noting that various factors—including the performance of bank stocks, crypto prices, and Trump’s social media venture—indicate optimism for a Trump victory. Trump Media, for instance, has seen its stock price surge by over 200% since it hit a low last month.
Additionally, a selection of stocks that stand to gain from a Trump administration has recently shown upward movement. Morgan Stanley released a report identifying a “Republican basket” of investments, which includes companies in energy, banking, and cryptocurrency. This Republican portfolio has outperformed a similar Democratic-focused portfolio by 10% over the year.
Guerra emphasizes that mixed signals within the market reflect a tight and polarized electorate. “Part of the reason why we have conflicting indicators right now is because of how divided the electorate is and how tight it is in these swing states,” she notes. “This is a true toss-up. You can see that dynamic play out both in the markets and the economy.”
In a statement, Trump campaign spokesperson Karoline Leavitt underscored Trump’s poll dominance, adding that Republicans are making significant strides in voter registration and early voting compared to prior elections. “Voters know that Kamala Harris has destroyed our country, but President Trump will fix it — and that is why he is well-positioned for victory on November 5,” she asserted.
The Harris campaign did not provide comments in response.
Some experts, such as Reena Aggarwal, a finance professor at Georgetown University, remain skeptical of the S&P 500 as a comprehensive predictor. According to Aggarwal, the stock indexes today are less representative of the U.S. economy than they were in previous decades, mainly due to the outsized influence of tech companies. Additionally, the number of major private companies that are not publicly traded has grown, reducing the representativeness of public stock performance.
In past decades, the stock market better reflected the “broad economy,” as industrial and energy corporations with extensive workforces made up a more substantial part of the index. Now, tech giants dominate, leading to a disconnect between the stock market and the overall economy. “The market and the broader economy — there’s a disconnect,” Aggarwal points out.
For Stanford’s Grimmer, the historical link between economic indicators and presidential elections remains relevant but is ultimately limited. He warns against reading too much into patterns based on specific data points, noting that voters’ economic perspectives vary widely as Election Day approaches. Thus, the stock market may not be the best gauge of who will prevail.
“You can only use history so much,” Grimmer advises. “We’re just going to have to wait and find out. It’s a coin flip.”
