As the calendar turns ever closer to the November 5 election and polls become daily events, the connection between the stock market and the election becomes increasingly important.
As we pointed out in previous election-related reports, investors often mistakenly believe that the election outcome determines what the stock market will do. History instead suggests the opposite is often true.
What the S&P 500 does between the close on July 31 and the close on October 31 frequently has correctly forecasted the election outcome. If the S&P 500 in this period has a gain of any magnitude, the incumbent, or his political party, has retained control of the White House. Conversely, an S&P 500 loss means White House control reverts to the other political party.
Like many other election-related statistics, many people brush this off as merely being coincidental, but a close look at prior elections underscores the accuracy of this pattern.
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