When examining the statistics of previous election results compared to the state of the stock market, the current situation does not look good for Democrats.
Small Statistical Sample
The stock market has been a strong indicator of presidential change throughout the last century, recording strong market performance before elections where the incumbent president or president’s party won, and declining market condition when there was a upcoming change in the White House.
However, correlation does not necessarily mean causation and the statistical sample is entirely too small to make any definite conclusions. With only 18 elections in which there was no change, and 11 elections in which the party in the White House changed since the beginning of the last century, the conclusion cannot be considered statistically accurate.
Change is Possible
In another bit of good news for the Democrats, there is still enough time until the election for the situation to shift, as it is usually the last month that truly determines the voting result. For example, eight years ago the market did not drop until the last few months before the election, which then signaled the defeat of the incumbent candidate.
There is also a good chance that several stimulus programs will be pushed through during the following weeks and months. The Federal Reserve will most likely reverse its decision from December to raise interest rates, and will most likely announce additional programs of quantitative easing.
Similar stimulus reversed the bear market in 2011, with the huge decline starting in April and culminating in September with the S&P 500 dropping close to 17 percent. The Federal Reserve reacted with the Operation Twist program, lengthening its Treasury average maturity. The bear market ended not long after that, meaning that the market may have as many twists left in it as this election.