Wall Street has a fairly reliable track record of predicting who wins presidential elections.
Since World War II, when the S&P 500 fell in the three months leading up to the November vote during a presidential election year, the incumbent president or party of the outgoing president has lost the election 88% of the time. Similarly, when the S&P 500 rises during that period, the incumbent or party of the outgoing president has won 82% of the time.
Until Friday the stock market had been predicting a Trump win. But the S&P 500 slipped 1.2% on Friday, just enough to send stocks negative for the last quarter, giving a razor-thin edge to Joe Biden.
Goldman Sachs analysts predict a “blue wave,” in which Democrats will retake the White House and Senate and maintain control of the House of Representatives. A Goldman Sachs chief economist said that a blue wave would prompt an upgrade of their forecasts, with the likelihood of at least a $2 trillion stimulus being passed quickly after inauguration, and Biden’s long term spending on infrastructure, climate, health care, and education.
Trump predicts the stock market would crumble if Biden wins, but Moody’s Analytics says Biden’s economic proposals would create 7.4 milllion more jobs than Trump’s, and the U.S. would return to full employment in the second half of 2022, almost two years earlier than under Trump’s plan.
No incumbent has ever won a second term when there has been a recession in the two years before an election, but Trump still scores high with potential voters over his economic record.
The only incorrect forecast when the market fell in the three months leading up to an election was in 1956, when incumbent President Dwight Eisenhower defeated Adlai Stevenson despite a 7.7% stock market decline during the Suez Crisis and the Hungarian Uprising.