This One Chart...Stock markets ahead of US elections
"I ran because of you, I ran because of Barack Obama" - Donald Trump
To say 2020 has been a crazy year is a total understatement. Throw in a US Presidential election of this sort, and it might just be the sour cherry on top - I never really liked those sour cherries, did you?
At the time of writing this, there is less than 24 hours to go before voting polls close in the Unites States. As I have written in the past, there is very little correlation between who the US President is and the stock market, yet market's focus a lot on who the incoming President might be. It's probably fair to say most recently, market participants are far more interested in the actions of central banks and not Presidents. Maybe politics will return to the forefront of investors...maybe.
In today's chart we look at how the stock market has performed three months prior to a US election. What we see is each time the stock market higher, it's associated with an incumbent victory (1996, 2004, 2012). Each time the stock market ends the period lower, it's associated with an incumbent loss (1992, 2000, 2008, 2016). So far in 2020 - it couldn't be closer, the market is higher, indicating an incumbent victory.
The most important lesson of 2020 for investors, if one has not already learned this lesson is that the market is right more often than it is wrong, and it has an uncanny way of humbling us.