The Polls Say Clinton, the Market Says Trump

The S&P 500’s decline in recent months augurs well for the Republican nominee.

By John Kimelman

Those who want Donald Trump to be the next president may need to stomach at least a short-term hit to their stock portfolios.

Indeed, the U.S. stock market’s recent decline could be playing right into the hands of the real-estate developer and his supporters.

As Barron’s and other publications have pointed out in the past, the Standard & Poor’s 500 has a strong record in choosing the next president.

As we wrote in August, “Going back 88 years, when stocks advance in the three months before the election, the nominee representing the party in the White House almost always wins. When stocks are down in that period, the candidate challenging the incumbent party usually triumphs. Thus it can be said that the Standard & Poor’s 500 index has correctly predicted 19 of the past 22 presidential elections.”

In past elections, however, many of those candidates likely had little to do with the reasons behind the rise or fall of the stock market in the race’s final months. For example, in 2008, the collapse of Lehman Brothers in September of that year and a building financial crisis were the main culprits behind a declining stock market; the policies and personalities of Democrat Barack Obama and Republican John McCain were far less significant to the market’s actions.

But this fall, Trump may be both contributing and benefiting from the stock market slide, as many investors worry about the prospect of a future president with a brash, unconventional personal style and draconian views about trade and immigration.

It’s arguably good news for Trump that the S&P 500 has fallen by more than 4% since early August. Indeed, in the past four days, the Republican nominee may have gained on Clinton based on shifting poll results. Clinton is now up by only 2.2 percentage points in the RealClearPolitics average of polls, a roughly three-point shrinkage in the lead she had last Friday.

This aforementioned S&P 500 indicator of election results has gotten even stronger over the past three decades.

As Bloomberg’s Rebecca Spalding pointed out in a piece filed earlier Tuesday, the performance of the S&P 500 has signaled the outcome of every presidential election since 1984, according to an analysis by Strategas Research Partners.

In addition, the index on Tuesday fell another 0.68%, to 2111.72.

In addition, the CBOE Volatility Index, or VIX, the market’s so-called fear gauge, gained 8.79% to 18.6 on Tuesday. As MarketWatch points out, the last time the so-called fear gauge closed at such an elevated level was June 27, in the weeks after the U.K.’s surprise vote to leave the European Union.

As Bloomberg’s Spalding points out, “the reputation of markets in handicapping politics took a beating in June, when stocks around the world soared prior to the U.K. referendum only to fall the most in five years when voters chose to secede.

“Just four months removed from that shock, anxiety levels have spiked in the final week of an election season marked by twists,” she adds. “Clinton’s once-dominant lead over Republican Donald Trump has withered in polls since news Friday that her e-mails remain a topic of interest to the FBI.”

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