There is a 64% chance that Kamala Harris will win the November presidential election, given the stock market’s strong performance so far this year.
This is moderately higher than the 58% probability I reported in a Chronicle of last MayThat’s because the stock market is higher today than it was then, and there is a significant correlation between the stock market’s performance during an election year and the incumbent party’s chances of retaining the White House.
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Many readers have asked me to update this column now that President Biden has dropped out of the race and Kamala Harris is the presumptive Democratic nominee. But the change in candidates has no impact on the statistical conclusion, which is based on the identity of the party in power rather than the candidate. The only input to my simple statistical model is the year-to-date return of the Dow Jones Industrial Average DJIA, which is higher today than it was three months ago.
It’s important to put this model’s conclusion in context. For one thing, it’s by no means a guarantee. In 2016, for example, on Election Day, the stock market was showing modest year-to-date gains and the incumbent party still lost. In any case, it’s entirely possible that the stock market could fall between now and Election Day, reducing the probabilities currently calculated by my model. Harris’s probability of victory would fall below 50%, for example, if the DJIA’s year-to-date return on Election Day were negative.
On the other hand, the stock market has a stronger statistical track record than several other indicators I’ve analyzed, such as the economy (as measured by GDP), the Conference Board’s Consumer Confidence Index, and the University of Michigan’s Consumer Sentiment Survey. Look at the accompanying chart, which was constructed by dividing all election years since 1900 into thirds, based on the cumulative return of the DJIA on Election Day. Notice that the incumbent party’s chances of winning increase with each tertile.
What about futures markets and electronic betting? Since they have only been around for a few presidential election cycles, there is too little data to know whether they have a better track record than the stock market. Nevertheless, I see that these markets are currently placing similar odds on a Harris victory as my stock model. Harris Contract at PredictIt.orgfor example, gives him a 58% probability of winning.
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