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The stock market is a terrible political prognosticator. That’s important to remember as a counter to those who view the market as a political barometer, but many financial websites nonetheless post scoreboards showing how stocks have performed during various presidencies.
Some financial analysts have taken the U.S. stock market’s current weakness to mean that President Joe Biden’s re-election chances are fading. Try as I might, I can find no statistical support for the notion that a president’s odds of being reelected are correlated with stock market performance.
Consider how the U.S. stock market has fared in calendar years immediately prior to presidential elections. Since the market is forward looking, discounting the economy several quarters hence, you might think that the market’s prior-year performance would be a good predicter of the incumbent party’s odds of retaining the White House. Not so. There is no statistically significant correlation between those odds and the Dow Jones Industrial Average’s
DJIA
return in those prior years.
If Biden’s odds of being re-elected are falling, we can’t say it’s just because the stock market is struggling. I reached the same conclusion when correlating the stock market’s return during election years and the incumbent party’s odds of retaining the White House.
I next searched for correlations between the stock market’s shorter-term gyrations and Biden’s re-election odds as reported on PredictIt.org, the electronic predictions market. Once again I found no statistically significant correlations. Sometimes his odds fell in lockstep with the market, but sometimes it was just the opposite — with no overall pattern.
We shouldn’t be surprised by these results, according to Campbell Harvey, a Duke University finance professor. In an email exchange prior to the 2020 election, he wrote that “the sample [of past Presidential elections] is too small and there are hundreds of variables,” making it very difficult to come up with any conclusion that has genuine statistical significance.
I want to emphasize that my analysis is non-partisan. Prior to then-president Donald Trump’s re-election effort, at a time when the stock market was reeling from the Covid-19 pandemic, I also argued that there is no correlation between the stock market and an incumbent’s chances of winning re-election. At that time I was accused of being pro-Trump. No doubt after this column I will be accused of being pro-Biden.
Neither is the truth. Instead, my advice is to keep your politics and your investments separate.
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com
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