Despite concerns that Kamala Harris's potential presidency could spell economic disaster, the stock market has remained stable even as her chances of winning have reportedly increased. A model, using stock market performance during election years to predict the re-election chances of the incumbent party, shows her probability of winning the U.S. presidential election is now slightly lower than two weeks ago. This decrease, from 72% to 69%, is partly due to a 0.90% decline in the Dow Jones Industrial Average during the same period.
This predictive model, while simple, has demonstrated significant statistical reliability, with a 99% significance level. It bases its forecast on the historical relationship between the incumbent party's re-election odds and the annual performance of the Dow Jones. However, the model is not infallible; a 69% probability is not a certainty, and past performance does not guarantee future results.
Compared to many Wall Street models, this one has a better historical track record. The theory behind it is logical: the stock market is forward-looking, and a rising market suggests that investors are optimistic about the economic outlook. Studies show that voters often cast their ballots based on their economic conditions.
Interestingly, periods when Harris's winning odds increased did not lead to a stock market downturn; rather, the market averaged gains. Conversely, when Donald Trump's winning odds increased, the stock market tended to decline. This aligns with predictions from some of Trump's supporters that his re-election could lead to a market crash.
Though no predictive model is foolproof, this one based on the Dow's annual returns provides enough historical success to warrant attention.
