The Strategist

S&P found a way to guess new US president


08/02/2016 - 13:07



S&P experts have analyzed movement of US indices during pre-election period for the last 72 year, and traced relationship between the exchange "rally" and election of a new president.



Denise Cross Photography
Denise Cross Photography
Analysts of S&P Global Market Intelligence conducted a historical study, and calculated that victory of a candidate for US presidency is almost always anticipated by investor sentiment in the course of a few months before the day of voting. 

The experts were based on fluctuation of S&P Global BMI (Broad Market Index) since the election in 1944, the year when S&P was formed in its current form. The study considered the last three full months before the election, from 31 July to 31 October. In 2016, the opening exchanges fell on Monday, 1st August.

82% of cases showed that growth of S&P 500 over the period was followed by victory of the ruling party. On the other hand, if the index declined, then 86% of cases resulted in President – opposition member. The explanation is simple: if the economy is expanding and quotes are growing, then the voters agree with Washington’s current route. In the opposite case, the Americans feel they need a new administration.

There were only three cases of exception to this rule. In 1956, the market swooped down on the background of the Suez crisis in the Middle East, yet President Dwight Eisenhower retained his post. In 1968 and 1980, Democrats were succeeded by Republicans, despite the market growth. Experts say it was caused by strong candidates from the "third party", who took away part of the electorate following the race (George Wallace and John Anderson, respectively).

S&P analysts warn that the forecast may be imprecise in this particular case, too. Just like the two previous exceptions, the 2016 elections also have a solid third party candidate, Gary Johnson from the Libertarian Party. According to CNN/ORC poll at mid-July, 13% of Americans are going to vote for him. In 1968, the same number of voters chose ultra-conservative Wallace, what ensured him a victory in five southern states.

Currently, the S&P 500 is near historic highs. After a significant fall in the end of June (on the background of the Brexit referendum), the quotes quickly recovered and went up. At the end of the trading day of Friday, 29 July, S&P 500 stood at around 2173.6 points.

Presidential elections will be held in the United States on 8th November. Americans will have to make a choice between the candidate of the Democratic Party, Hillary Clinton, and her rival Republican Donald Trump. Those two are representing different options for the future of their country.

As noted by The Wall Street Journal, both candidates for the highest office are offering ideas so different, that they seem to be diametrically opposed. In connection with this, the publication compared the candidates’ positions on major foreign policy issues.

Europe

Trump is highly skeptical about the European leaders because of their inability to take more aggressive action to stop the flow of terrorists through their borders.
He welcomed the referendum on leaving the UK from the European Union, and demanded that Germany and other countries have to contribute more in the NATO budget.
In turn, Clinton has often expressed support for US allies in Europe. At the same time, however, she believes that European countries need to more actively resist the flow of terrorists from the Middle East. She warned of dangerous consequences of Brexit.

Russia

Trump has put forward an idea of creating a new alliance with Russia, saying that reset of relations is necessary in order to alleviate tensions in Syria and elsewhere. At that, Clinton characterized the relations with Russia as complex. Being Secretary of State, she worked on increasing cooperation between the two countries. However, at the end of her tenure as secretary of state, she composed a private memorandum to warn President Obama that relations with Russia have reached a low point and that an opportunity for restart had been missed.

China

Trump has criticized China from the very beginning of his campaign, describing the country as one of the US's main rivals, especially in the economic sphere, noted The Wall Street Journal.

The billionaire stated his intention to "expand the US military presence in the South China Sea as a deterrent to China's territorial claims". In addition, he promised to tighten measures for the protection of US intellectual property, and to resist Beijing’s attempts to expand exports at the expense of subsidies. 

For her part, Clinton has "constantly criticized China on the issue of human rights protection". Yet, she believes that the two countries still have an opportunity to form "positive cooperative relationship".

source: wsj.com, cnn.com




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