The S&P 500 has its best day in six weeks – key election indicator in favor of Kamala Harris

by Junna Base November 6, 2024

Topline

Stocks’ rally on Tuesday capped a solid run-up ahead of the election and secured a historically accurate stock market forecast for a victory for Vice President Kamala Harris, although recent counterexamples may cloud the forecast.

A trader works on the floor of the New York Stock Exchange in 2017.

AFP via Getty Images

Important facts

All three leading U.S. indexes rallied on Tuesday: the benchmark S&P 500 rose 1.2%, the technology-focused Nasdaq gained 1.4% and the Dow Jones Industrial Average climbed 1%, or 430 points.

On Tuesday, the S&P and Dow posted their best percentage gains since September 19th and the Nasdaq since October 8th.

The rally means the S&P posted a strong 11.5% gain in the three months leading up to Election Day, with the S&P’s three-month performance representing a pivotal period for the presidential election, according to an analysis by Adam Turnquist, chief technical strategist at LPL Financial .

In the 24 elections from 1928 to 2020, the incumbent party’s presidential candidate won 12 of 15 elections (75%) when the S&P rose before Election Day and lost eight of nine elections (89%) when the index fell, meaning that the S&P was correct According to Turnquist, it was ahead in 20 of the last 24 elections (83%).

But two of the three instances in which an incumbent lost during a stock market boom are particularly painful for Harris, as they include 2020, when her current opponent Donald Trump failed to secure a second consecutive term, and 1968, that Previously, 2020 was the last time a sitting one-term president was not his party’s nominee, as Lyndon B. Johnson stepped down for his running mate, Hubert Humphrey.

tangent

According to Turnquist, this is the S&P’s best three-month pre-election performance since 1928. In that election, Republican Herbert Hoover defeated Democratic candidate Al Smith in a landslide, but those gains came just months before the stock market crash of 1929.

Cons

Poll-based prediction models give Harris and Trump nearly equal odds of becoming the next president, but the burgeoning election betting market is tilting toward Trump. The Election Betting Odds Tracker, which aggregates odds across five platforms including Kalshi and Polymarket, gives Trump a 58% chance of winning as of 4 p.m. EST on Tuesday.

Surprising fact

The Trump and President Joe Biden administrations both experienced above-average stock markets. The S&P returned 82% from Election Day 2016 to Election Day 2020 and 73% from Election Day 2020 to Tuesday, according to FactSet data.

What we don’t know

How Wall Street will react to the election results. Strategists largely agree that avoiding a scenario in which either Democrats or Republicans win the presidency and both chambers of Congress would be a boon for stock prices because it may prevent some anti-profit moves like Trump’s tariffs or Harris’ increased corporate tax rates come into effect. According to CNBC, in the last 10 elections, the S&P has gained an average of 1.5% from Election Day to the end of the calendar year, noting that returns tended to be higher after closely contested races like 2024.

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