On Predictor of Presidential Election Based On Prior 3 Months Of Stock Market Returns

August 1, 2016

Now that the two major party conventions (RNC, DNC) are over, there will be heated debates and discussion as who will be our next president.  We found one presidential election predictor is rather impressive in forecasting its results, as shown in the following chart published by the Blackrock Group.  The prediction is based on the 3 months of stock market (S&P500) returns prior to the election.  That is to say, the aggregate stock market return for August, September and October will determine whether the incumbent party will win if the return is positive or the challenging party will take over if the return is negative.   The success rate is an impressive 86% (19 out of 22).

As our expertise is in stock market analysis and forecast, we will provide evidence that the incumbent party will lose the election in November, purely from the technical and analytical perspective.  We disagree with Byron White, a senior officer with Blackstone group, who suggested a different election outcome based on his positive market outlook.

Fourier Cycle Analysis on S&P500

In our market analysis, we use three sets of different dataset to analyze the market returns of three months prior to the election on 11-8-2016.   We will not go into the detail of our analysis, which was published before on this website.  The references for two of our previous articles related to this election outcome analysis are given at the end. 

Short-Term Analysis & Forecast of S&P500

The dominant cycle for this daily dataset is three months. The S&P500 is undergoing a topping process and will soon start to decline to a bottom in October.  The decline for the three months prior to the presidential election is estimated at – 4.03%.

Medium-Term Analysis And Forecast

This is a Fourier cycle analysis and forecast of S&P500 for 30 years.  For this dataset, the major component is 8 years.  Detail analysis with the implication for a recession onset is given in the reference below. The decline for the three months prior to the presidential election is estimated to be – 2.53%.

Long-Term Analysis And Forecast

We include the following long-term analysis of the DOW Index, which covers a period of 80 years.  We will defer the detail discussion in the reference below.  For this set, we estimate a negative stock market return for the next three months to be – 2.34%.  We must emphasize that this estimate may be much lower, as viewed from the historical price fluctuation shown in the chart.

The long-term gold chart is included in the next section.  We firmly believe in the alternate 20-year generational rise and fall of Dow versus gold prices, as discussed in our article on Mary’s rule.  The rapid rise of gold price is often indicative of coming recession.

Role of Gold And Rise of Tangibles

The following two charts may dampen the optimistic view of the stock market held by the senior officer of the Blackstone Group.

The Seasonal View of Market Returns

In this section, we show the seasonal view of the stock market return versus that of the gold market by month.

Observe the contrast between the different returns in the month of September for S&P500 versus Gold in the above charts.  September is the lowest return month for the stock market but the highest for gold.  The rise of gold is sometimes associated with financial turmoil and social volatility.  Are we presently in such situation globally?

Summary

We believe that the stock market in US, as well as globally, is being popped up by massive currency printing, unrelated to real economic growth.  While the global monetary base has risen tremendously, the measured monetary velocity has dramatically decreased to historical low – that is, the massive printed currency is not in general circulation used in an attempt to stimulate growth. How long will this untenable situation last?

We are technical analysts and not political pollsters.  What can we as citizens do?  We can pray for this country during this divisive election period and for its healing after the election.  We can pray for our leaders, current and future, to return to the faith of our founding fathers who recognized the real strength of this nation.

“Blessed is the nation whose God is the Lord, the people He choose for His inheritance.” Psalm 33:12

References:

Mary’s Generational Rule For Astute Investors, 6-5-2016

http://www.gold-eagle.com/article/mary%E2%80%99s-generational-rule-astute-investors

Divining World Stock Market And Next Recession After Brexit, 6-26-2016

http://www.gold-eagle.com/article/divining-world-stock-market-and-next-recession-after-brexit

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F.T. Dao is a private investor and recently left the corporate world for technical analysis of stock markets.  He holds a PhD degree in physics and has done technical analysis of the market on the side for many years.  He welcomes constructive discussion and can be reached at:  ftdao245@gmail.com  , ftdao245@comcast.net

USA has the world’s largest holdings of gold: 8,134 - representing 77% of its Total Foreign Reserves.

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