Forget tracking polls, focus groups and kissing babies. The most accurate predictor of election-year winners might be the stock market.
InvesTech, a research firm in the decidedly non-financial hub of Whitefish, Mont., has examined election year cycles over the past 100 years.
Stock market increases in the two months prior to a presidential election favor the incumbent. Stock market decreases for the same period favor the challenger. The trend has presented itself almost 90% of the time (89% to be exact) in the past 28 elections, failing in just three; 1956, 1968 (though incumbent LBJ did not run) and 2004.
The reason, according to InvesTech, is that an increasing stock market is accompanied by increased consumer sentiment and overall satisfaction, which leads to feelings of comfort, an important psychological gain just prior to the election. Conversely, stock market declines are accompanied by volatility and investor (and voter) concern.