Topline
The S&P 500 ended above 5,800 for the first time ever Friday, as the leading U.S. stock index extends its hot stretch, shaking off summer recession concerns and placing one indicator that has accurately predicted 20 of the last 24 presidential elections firmly in the favor of Vice President Kamala Harris.
A trader wears a “Trump” hat as he works on the floor of the New York Stock Exchange in 2017.
Key Facts
The S&P rose 0.6% to a new all-time closing high of 5,815 and the other leading U.S. index, the blue chip Dow Jones Industrial Average, climbed 1% to a record close of 42,864.
The indexes got a boost from the first batch of third-quarter earnings reports from banks JPMorgan Chase (shares up 4% Friday) and Wells Fargo (up 6%), with JPMorgan chief financial officer Jeremy Barnum declaring his company’s performance confirms the U.S. economy stuck the “soft landing” and is amidst a “Goldilocks” backdrop with steady growth and declining interest rates.
The rally comes as Election Day nears and puts a metric with high accuracy in forecasting the results of the presidential election: If the S&P rises in the three-month period leading up to the election, the incumbent party has almost always retained the Oval Office.
In 12 of 15 elections dating back to 1928, the incumbent party enjoyed a strong three-month market run—and won.
But the incumbent party lost eight of the nine elections in which stocks fell, equating to an 83% predictive rate, according to research from LPL Financial’s chief technical strategist Adam Turnquist.
It’s looking increasingly likely the S&P will be in the green for the three months leading up to the Nov. 5 vote, as the index is up more than 12% since Aug. 5, which coincidentally was the date the S&P suffered its worst loss in 23 months as recession fears overtook Wall Street, a selloff Harris detractors deemed the “Kamala crash” despite the weak-at-best correlation between the losses and the Democratic candidate.
Contra
The stock indicator was not accurate last election, as the S&P’s 2.3% gain leading up to Election Day 2020 was not enough to vault then President Donald Trump over challenger Joe Biden. Several polls indicate voters favor Trump over Harris on the economy, indicating her boost from increased brokerage account balances may be limited. Betting markets have recently tilted in Trump’s favor, with platforms Kalshi, Polymarket and PredictIt each pricing in about 53% odds for a Trump victory, while polling aggregator FiveThirtyEight gives Harris a 53% probability of securing the presidency.
Key Background
Fresh off of its best nine-month start to the year since 1997, the S&P has returned a blistering 23% year-to-date and 66% over the last two years, as an extended bull market emerged from 2022’s anxiety that hot inflation would pose a major overhang to stocks. The U.S. stock market performed remarkably well under both Biden and Trump, but the S&P returned more under Trump (83%) than under Biden (59%), though the president has far less of an impact on the market than tangible factors like earnings growth.