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The Stock Market Predicted Trump's 2016 Victory, But What Is It Saying About 2020?

Wayne Duggan

Few people saw President Donald Trump’s 2016 election victory coming.

The stock market is a leading indicator, and LPL Financial Senior Market Strategist Ryan Detrick said the market got it right with Trump in 2016 and could once again help investors know what to expect on Election Day 2020.

Since 1928, investors have been able to use one simple stock market trick to correctly predict the winner of the upcoming 2020 presidential election 87% of the time, according to Detrick. Since 1984, this method is 100% accurate.

When the S&P 500 is higher over the three months leading up to the election, the incumbent party candidate almost always wins. When it is down over that same three-month stretch, the incumbent party candidate almost always loses.

Getting 2016 Right

Detrick said almost all the polls suggested Democratic presidential nominee Hillary Clinton would win the 2016 election, but not the market.

“The Dow had a nine-day losing streak directly ahead of the election, while copper — more of a President Trump infrastructure play — was up a record 14 days in a row, setting the stage for the change in party leadership in the White House,” Detrick said Monday.

The chart below shows a composite of the S&P 500’s performance in all the presidential election years since 1950. The S&P 500 performance clearly diverges in the months leading up to the election in years the incumbent party wins versus years of a party transition. 

Democrat Joe Biden currently has a 61% chance of a November victory compared to just a 39% chance for Trump, according to PredictIt.

Benzinga’s Take

If Biden’s momentum continues, investors may want to consider selling or shorting the SPDR S&P 500 ETF Trust (NYSE: SPY) heading into August. Biden has already said he plans to raise U.S. corporate tax rates from 21% to 28%, which may spook investors given today’s difficult economic climate.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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