Donald Trump or Joe Biden? US stock market expert predicts presidential poll’s surprising result basis indices movement

Recent surveys of prominent prediction markets have shown a wide range of probabilities regarding President Joe Biden’s chances of winning re-election, fluctuating from below 38% to as high as 76%.

According to an Economist survey, Trump has a 45% chance of winning the poll as compared to Biden who holds a 44% chance to win.

Methodology of the poll prediction

To gain insight into alternative indicators, Mark Hulbert conducted an analysis encompassing various economic, financial, and sentiment measures. This analysis included the U.S. stock market, real GDP, the Conference Board’s consumer-confidence index, and the University of Michigan’s consumer-sentiment survey, focusing on their year-to-date changes leading up to Election Day.

Among these indicators, only the stock market demonstrated a significant correlation with the incumbent party’s likelihood of victory, a correlation statistically significant at the 95% confidence level.

Analysis findings predict a Joe Biden victory

His findings show a clear relationship between the year-to-date performance of the stock market and the probabilities of the incumbent party retaining the presidency. He shows how historical data since the establishment of the Dow Jones Industrial Average in 1896 supports this correlation.

Based on this historical correlation and the Dow’s current year-to-date price-only gain of 5.6%, President Biden’s chances of winning re-election stand at 58.8%. These odds will adjust accordingly if the stock market experiences further gains or losses leading up to Election Day.

Hulbert argues, even without the ambiguity of electronic prediction markets, it’s challenging to argue that their track records surpass that of the stock market. Limited sample sizes hinder the ability to establish statistically significant patterns. For instance, the Iowa Electronic Markets (IEM), one of the oldest prediction instruments dating back to 1988, has only nine presidential elections in its track record.