A model that looks at how the stock market has done so far this year to predict the current political party’s chances of winning the election says that U.S. Vice President Kamala Harris’s chances of winning are lower than they were two weeks ago.
Even so, that model still says that Harris, the Democratic candidate for president, will likely win the U.S. election on November 5—with a 70% chance of doing so. It’s because the Dow Jones Industrial Average DJIA -0.85% has gone down that Harris’s odds are lower than they were on Oct. 17, when I last wrote about this model. They were 72%.
This model for predicting the stock market is not hard to understand. It takes advantage of the fact that the current political party’s chances of winning an election tend to mirror the Dow’s performance so far this year. At the 99% level, the model’s track record is statistically very important.
Take a look at the chart above. It plots the trendline that best fits the historical data back to 1900. Is the model foolproof? Of course not. And bear in mind that a 70% probability is not 100%. Furthermore, even if the model had a perfect track record, there’s no guarantee that the future will be like the past.
People tend to vote their pocketbooks.
Still, my simple model has done better than most of the models used by Wall Street, even though many, if not most, of them are not based on facts. The model makes sense in theory. Since the stock market looks ahead, a rising market means that most investors are optimistic about the next few months for the economy. A lot of research has shown that people vote with their wallets.
In reaction to my column from the middle of October, I got a lot of angry emails. Many of you said that Harris being president would be terrible for the economy. I don’t know either. But I do know that if those scary predictions came true, the stock market would drop whenever Harris’s chances of winning go up. As I said in a piece earlier this week, that hasn’t been the case. The stock market has gone up most of the time since July, when the Harris contract at PredictIt.org went up.
During the same time period, the stock market has generally gone down during the weeks when the Trump contract at PredictIt.org went up in price. This fits with what Elon Musk, a supporter of Trump, said recently about how the stock market would crash if Trump wins the election.
In the end? It’s impossible to make perfect predictions, and this one based on the Dow’s year-to-date gain is no different. We should still pay attention to it because of its good track record.
