Stock Market as Election Oracle: Can S&P 500 Returns Predict Presidential Winners?

The performance of the S&P 500 in the three months leading up to a US presidential election has historically been a strong predictor of the election outcome. Since 1928, a positive S&P 500 performance during this period has been associated with the incumbent party winning 80% of the time, while a negative performance has been associated with the incumbent party losing 89% of the time. This method has an 83% accuracy rate, correctly predicting 20 of the last 24 elections. However, it`s not foolproof, as demonstrated by the 2020 election where the S&P 500 was positive, but the incumbent party still lost.