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Biden will win, polls say. But the stock market is sending a different signal

Biden will win, polls say. But the stock market is sending a different signal

PAUL BRANDUS



a man standing in front of a building


© AFP via Getty Images


With three weeks to go, President Trump’s re-election bid is in trouble. At least that’s what the polls show.

But it’s not what the stock market is signaling. Based on nearly a century’s worth of election-year data, Trump may yet win.

“A rising stock market tends to be a ratification of the present policies being satisfying to the investing public.” — Julian Emanuel, chief equity and derivative strategist at BTIG

Here’s the research, and it is compelling: Since 1928, whenever the S&P 500 Index (SPX) of the largest U.S. stocks has risen in the three months prior to a presidential election, the party that controlled the White House won 90% of the time.

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“If you think about it intuitively, it makes sense,” says Julian Emanuel, chief equity and derivative strategist for the investment firm BTIG who compiled the data. “Because a rising stock market tends to be a ratification of the present policies being satisfying to the investing public.”

History lines up squarely behind Emanuel. In 1928, for example, President Calvin Coolidge, a Republican, chose to retire, but stocks rose between August and November. It was the last full year of the Roaring ’20s and helped lift the new GOP standard bearer, Herbert Hoover, into the White House.

Four years later, the reverse occurred. The Great Depression, which began in the fall of 1929, dragged down stocks — including between August and November 1932 — and Hoover was crushed by Democrat Franklin D. Roosevelt.

In fact, there have been six presidential years since 1928 when the S&P 500 fell in the three months before election day. All six times, the party in the White House lost.

Video: Biden campaign resuming negative ads against President Trump (FOX News)

Biden campaign resuming negative

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A Democratic Blue Wave Is Looking More Likely. That Could Signal the End of Big Tech’s Market Dominance.

A Democratic Blue Wave Is Looking More Likely. That Could Signal the End of Big Tech’s Market Dominance.

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A resident wearing a protective glove drops a ballot into a ballot box at an early voting polling location for the 2020 Presidential election in San Francisco, California


David Paul Morris/Bloomberg

Investors are acting like Democrats have a better chance of winning since the contentious Sept. 30 debate between President Donald Trump and former Vice President Joe Biden.

A positive coronavirus diagnosis for Trump may have sealed the deal. The odds of a Biden win in November have increased to 67% from a pre-debate reading of 55%, according to Raymond James, citing Bloomberg data.

The odds of Democrats taking the majority in the Senate rose to 66% from 55%, Raymond James added.

That could all mean a rotation out of big tech stocks into cyclical stocks and investments that benefit from the expected extra stimulus a Democrat-led government would bring, says Raymond James’ Tavis McCourt in a research note.

Hopes for a big stimulus package—the Democrats had proposed a $2.4 trillion bill—have faded in and out over the last few days in a series of mixed messages from the White House. Trump at first demanded Republicans walk away from the negotiating table. Then he directed a series of smaller, more targeted deals, including one for the ailing airline industry.

On Thursday, House Speaker Nancy Pelosi said a smaller airline deal wasn’t in the offering without broader aid measures.

Raymond James looked at how various traders and macro funds are positioning themselves. They appear to be making a notable shift to smaller cap stocks and cyclical industries.

A Democrat sweep could mean higher tax rates—Biden has vowed to rework Trump’s 2017 giant tax cut. That could take 5% to 8% off annual EPS on an index level, Raymond James said.

Material stimulus could raise longer-term rates, while short-term rates

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A 100-year-old stock indicator just flashed a bullish signal suggesting further market upside

A 100-year-old stock indicator just flashed a bullish signal suggesting further market upside

A trader works on the floor at the New York Stock Exchange (NYSE) in New York, U.S., March 4, 2020. REUTERS/Brendan McDermid
  • The Dow theory — a financial theory named after the father of technical analysis, Charles Dow — just flashed a bullish signal suggesting more upside ahead for the broader stock market.
  • The theory is based on the relative price action of the Dow Jones industrial average and the Dow Jones transportation average, as traders look for a move in one to be confirmed by a move in the other.
  • On Wednesday, the Dow Jones transportation average closed at a record high. The theory would suggest that the Dow Jones industrial average will soon follow.
  • Visit Business Insider’s homepage for more stories.

Following the death of Charles Dow in 1902, hundreds of his editorials published in The Wall Street Journal (which he founded) were compiled and expanded on, giving rise to “Dow theory.”

Coined by S. A. Nelson and refined by William Hamilton and Robert Rhea, Dow theory is the study of the intermarket relationship between the Dow Jones industrial average and the Dow Jones rail average, now called the transportation average.

The general idea is that both averages, over time, should move in tandem, given that the transportation average represents companies responsible for the movement of goods across the country. For that reason, it should serve as a leading indicator.

Read more: Self-taught market wizard Richard Dennis took a $1600 loan and turned it into an estimated $200 million. He shares the 13 trading rules that turned his performance parabolic.

Put differently, both depend on each other: If the economy is thriving, transportation companies should also be thriving, as they are tasked with literally moving the economy.

Technical analysts look to Dow theory to confirm broad movements in the stock market. Specifically, traders look for confirmations and divergences between the two indexes.

A confirmation is when the transportation

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