icon
icon
icon
icon
Upgrade
icon

Coincidence? The Stock Market Thinks Harris Has a 70% Chance of Winning

AInvestMonday, Nov 4, 2024 2:31 am ET
1min read

Coincidence, or Some Kind of Mysterious Force?

Vice President Kamala Harris's chances of winning the U.S. presidential election have dropped slightly over the past two weeks, according to a model that predicts the incumbent party's chances of victory based on the stock market's performance this year.

Even so, the model still favors Harris, the Democratic candidate, giving her a 70% probability of winning on Election Day. This is a slight decrease from the 72% probability on October 17, which I last reported. The reason for this shift is tied to recent performance in the Dow Jones Industrial Average.

This stock-market-based model isn't complex. It leverages a historical pattern where the incumbent party's election chances tend to follow the year-to-date performance of the Dow. Statistically, this model has been reliable at a 99% confidence level.

The chart above shows a trendline based on data going back to 1900. Is this model foolproof? Absolutely not. And a 70% probability is not a guarantee. Even if the model were perfect, we can't assume the future will mirror the past.

That said, this simple model has a stronger track record than many Wall Street models, most of which lack statistical validity. The logic behind it makes sense: since the stock market looks ahead, a rising market suggests investor optimism about the economy's future. Studies show that people often vote based on their financial well-being.

After my October column, I received many angry emails from readers who believe a Harris presidency would harm the economy. I don't claim to know. But if these predictions were correct, we would expect the stock market to drop as Harris's odds improve. That hasn't happened. In fact, I noted earlier this week that the stock market has generally risen since July in weeks when Harris's chances of winning, as tracked by PredictIt.org, have increased.

Conversely, the stock market has tended to decline in weeks when Trump's contract on PredictIt has risen in price. This aligns with recent comments from Trump ally Elon Musk, who warned the stock market could crash if Trump wins.

The takeaway? No prediction model is flawless, including this one based on the Dow's year-to-date performance. But given its track record, it's worth paying attention to.

Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.