Forget the pundits, polls and prediction markets if you want to know which party will win the White House this year. It turns out that stocks have a remarkable track record of forecasting the outcomes of presidential elections, according to one market strategist.
The price performance of the S&P 500 during the three months leading up to presidential elections has an accuracy rate of 88 percent in predicting whether the occupant of the Oval Office would be reelected or replaced, writes Sam Stovall, chief equity strategist at Standard & Poor's Capital IQ.
"An S&P 500 price rise from July 31 through October 31 traditionally has predicted the reelection of the incumbent person or party, while a price decline during this period has pointed to a replacement," Stovall says in a new note to clients.
Since 1948, this "election-prognostication technique did an excellent job," says Stovall, recording an 88 percent accuracy rate in predicting the reelection of the party in power. The exception being when it failed in 1968.
Furthermore, the technique was accurate 86 percent of the time in predicting when the party in power would be replaced. It failed only in 1956, Stovall notes.
"Therefore, pay attention to the market's performance in the three months leading up to the presidential election," Stovall says. "It will probably do a better job than the plethora of political pundits prognosticating on the presidency."