With a tight competition between Joe Biden and Donald Trump, the stock market has historically been a reliable indicator.
Recent surveys of major prediction markets have shown a wide range of probabilities for President Joe Biden’s re-election chances, varying from below 38% to as high as 76%.
An Economist survey indicates that Trump has a 45% chance of winning the election, compared to Biden’s 44% chance.
Poll Prediction Methodology
To explore alternative indicators, Mark Hulbert conducted an analysis covering various economic, financial, and sentiment measures, including the U.S. stock market, real GDP, the Conference Board’s consumer-confidence index, and the University of Michigan’s consumer-sentiment survey. This analysis focused on year-to-date changes leading up to Election Day.
Among these indicators, only the stock market showed a significant correlation with the incumbent party’s likelihood of victory, a correlation statistically significant at the 95% confidence level.
Analysis Predicts Joe Biden Victory
Hulbert’s findings reveal a clear relationship between the year-to-date performance of the stock market and the probabilities of the incumbent party retaining the presidency. He demonstrates how historical data, since the establishment of the Dow Jones Industrial Average in 1896, supports this correlation.
Based on this historical correlation and the Dow’s current year-to-date price-only gain of 5.6%, President Biden’s chances of winning re-election stand at 58.8%. These odds will adjust if the stock market sees further gains or losses leading up to Election Day.
Hulbert argues that even without the ambiguity of electronic prediction markets, it’s difficult to claim that their track records surpass that of the stock market. Limited sample sizes hinder the ability to establish statistically significant patterns. For example, the Iowa Electronic Markets (IEM), one of the oldest prediction instruments since 1988, has only nine presidential elections in its history.
