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