Can the S&P 500 Predict the Presidential Winner?

One of my favorite tactical money managers did a newsletter where he calculated the returns for the three months leading up to every presidential election going back to 1980 to see if there was a correlation between returns and who won the election. Let’s look at the numbers.

Interesting isn’t it?  Every election in the last 40 years was predicted by the 3-month returns leading up to the election. Does that mean Trump will win if the market doesn’t tank before election day? This chart would say yes and as you know, “it’s the economy stupid” as they say.

Stock Market Returns for 12 Months After a Presidential Election

A lot of people (advisors and consumers) are worried about what will happen to the stock market after the election. Many think the stock market will tank if Biden wins and will roar ahead if Trump wins. I went back over the same time frame and calculated the S&P 500 returns in the first year of each new presidency.

What do you notice from the above chart? 8 out of 10 times the stock market was not only positive, it was very positive. And the average returns for years when democrats are in power = 25.54% and for Republicans = 7.86%. That’s sort of a head scratcher to me, but that data is what it is.

What it means to me is that 80% of the time the market is positive in the year following an election. Of course, past performance is no guarantee of future performance, but if I was a betting man, I’d say 2021 will be a positive or even very positive year.

Low-Correlated / Alpha Driven Tactical Manager

Want to learn more about the tactical strategy discussed below? Click on the following link:

I wanted to give a shout out to the manager who gave me some of the data for this newsletter. His firm manages low-correlated strategies for the stock market. Below is info from our OnPointe risk software comparing his firm’s Focused 20 strategy to the S&P 500 going back to its live inception date.

This focused growth strategy is only 35% correlated to the stock market, the Beta is only .24, and the CALM Ratio is 1.57 (the S&P’s is 0.77).

The CAGR for the tactical strategy is 14.91% and the SPY is 15.015% (but with much more RISK).

If you are looking for an Alpha driven strategy that is designed with low correlation to the stock market, you might want to check this one out.

Roccy DeFrancesco, JD, CAPP, CMP
Founder, The Wealth Preservation Institute
Co-Founder, The Asset Protection Society