If the past is to be trusted, Wall Street has the power to accurately predict whether Hillary Clinton or Donald Trump will assume the presidency of United States. According to people who have researched the subject, Clinton is expected to win if stocks go up. In case the stock price plummets, Trump will, in all probability, be the President.
In the same way, if the stocks, as measured by S&P 500 Index, which tracks performance of America’s 500 biggest companies, dip, voters choose to elect a new party to the presidency about 86 percent of time. In his report, Stovall pointed out that it is a well known fact that fundamentals are led by prices. He mentioned that more often than not, the price returns of the S&P500 identified whether it will be the sitting president, or the party he led, was replaced or reelected.
This technique of predicting the stock market, however, was not fool proof all the time. There were times when it gave wrong predictions. This happened when there was the appearance of a noticeable third party candidate. The predictions could also go haywire if there is a sudden geopolitical shock. An example of this was in 1956 when France and England wrested the control of the Suez Canal. Egypt previously controlled the waterway.
The 2016 election year can be a stormy one. This is due to the presence of a strong third party factor. Gary Johnson, a Libertarian, has polled about 10 percent. The stock market itself is going into “presidential indicator stretch” and almost at all time highs.