When it comes to the election, what is the market “pricing in?”

Investors pay attention to the stock market not just because they are investing in it, but because they consider the market one of – if not the most – accurate of all leading indicators. Said differently, the market, in its infinite wisdom, will lead the real economy and will tell us where the world is headed. Recall the market peaked on February 19 while the US economy was still humming along and few  grasped the coming consequences of COVID-19 and bottomed on March 23 while the coronavirus case count was moving meaningfully higher and US economic performance was going from historically bad to worse. Which brings us to the subject of this Weekly Wire; what might recent market performance indicate about the upcoming election and the policy implications of the vote? Historically, an upward trending market through the three months leading into the election has boded well for the party holding the White House, and indeed the S&P 500 Index is up 5.74% since August 3 (see our Election Countdown Calculator), and up about 3.5% in October. But a (the?) prevailing narrative on Wall Street of late is the market isn’t pricing in a win for President Trump but is “pricing in” a decisive win for Joe Biden and, potentially, a Democrat sweep of Capitol Hill. We think the market is concerned about a contested  election and would welcome certainty around the November 3 vote. As it concerns a potential “blue wave,” if it was to lead to a meaningful amount of additional government spending in support of the economy, we think Wall Street would welcome it. That all said, we are three weeks away from the election, and we think calling a winner – at least as it concerns the White House and the Senate – is a very tricky proposition.

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Tagged: weekly wire, market perspectives, Tim Holland,  S&P 500 Index, Presidential election, Election Countdown Calculator, COVID-19