Even as investors enjoy strong gains in the stock market halfway through the year, some market indicators suggest that former President Trump will win the election in November.
Indeed, according to data from LPL Financial, the correlation between the S&P 500 and Trump’s election probabilities has grown notably stronger in recent months. On the other hand, Biden’s election chances have continued to be negatively correlated with the stock market since February.
Despite Trump’s recent guilty verdict, Trump’s election odds are holding strong at 50%, compared to President Biden’s 49%, as the S&P 500 continues to trend in the green, up about 11% year-to-date.
This is in sharp contrast to the historical relationship between incumbents and the stock market. Under the standard assumption, if the S&P is up overall heading into the election, the incumbent party will retain the White House. In fact, the stock market has correctly predicted the winner of the presidential election in 87% of elections since 1928 using this premise.
Reasonably so, the stock market frequently operates as a proxy for the wider economy. As consumers buy more, the economy tends to thrive, boosting both earnings and stocks in the process. This year has been unique, however.
Despite relatively good economic figures and a historically bullish stock market, Americans are generally unhappy with the economy’s state.
Election Odds Continue to Favor Trump Despite Bullish Stock Market
According to a recent Harris Poll published by The Guardian, 56% of Americans believe the U.S. is currently in a recession, while 55% believe the economy is contracting. Nearly half the country also believes the unemployment rate is at its highest level in 50 years and that the S&P is down this year. On every count, they are categorically wrong.
It’s unclear why Americans feel so disconnected from the economy. Some speculate it’s the result of increasingly pessimistic news coverage, elevated gas prices, or still-high inflation. Regardless, many people clearly blame the Biden administration for what they perceive as a deteriorating economy.
Even despite Trump’s resounding guilty verdict last week, his support has remained relatively steadfast. According to FiveThirtyEight’s General Election polling, Trump holds the lead with 40.9% of voters in his favor. This is higher than Biden’s 39.8% voter share and Independent Robert F. Kennedy’s 9.7%.
If you recall, last week, Trump was found guilty on all 34 counts of falsifying business records in his New York hush-money trial. This marks Trump as the first former U.S. president to be convicted guilty of a felony. Despite this, Trump hasn’t seen a notable drop in support for his re-election bid.
“Opinion on Trump is pretty much baked on across the country already, and last night’s verdict won’t change that,” Mark Shanahan, a Professor of American politics at the University of Surrey in the U.K., told Newsweek:
“In the short term his polling, and indeed his fundraising may get a boost, but this may dissipate in the weeks and months to come as voters get beyond the emotion of the court’s decision and focus on the fact that the former president was convicted by a jury of his peers: 12 citizens who weighed the evidence and simply did not believe him.”
That said, it’s only been days since the trial results. Polls may stand to change dramatically as the primary and general election dates inch closer.
Until then, investors and politicians should watch the stock market closely for any insight into future election results and the economy.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
