Lampert: Why the Stock Market Is Sitting Out the Election

Every U.S. presidential election season prompts a slew of articles attempting to predict the outcome. Conventional wisdom holds that a good economy bodes well for the incumbent’s party, whereas a weak economy favors the challenger. After all, "It’s the economy, stupid," (famously coined by James Carville in 1992) right?

Yet our research has shown that, since the Founding of the United States, the economy has not been the deciding factor in presidential elections. Rather, it’s the stock market which has been a reliable predictor — but only when an incumbent is running.

Back in 2012, our research group conducted a comprehensive study of stock market performance and U.S. presidential elections. "Social Mood, Stock Market Performance, and U.S. Presidential Elections: A Socionomic Perspective on Voting Results," by Prechter, Goel, Parker and Lampert, was published in SAGE Open.

It quickly became the third-most-downloaded paper of the year on the Social Science Research Network and garnered media attention across the country.

What made the study unique was its historical breadth.

While many studies of the stock market and presidential elections go back, say, 50 or 100 years, we studied the entire history of presidential election outcomes starting with the first U.S. president, George Washington.

Our study found a significant relationship between the percentage change in the stock market in the years prior to an election and the incumbent party’s subsequent margin of victory or defeat, but only for elections in which a sitting president sought another term.

For elections without a sitting president in the race, the correlation between the stock market’s performance and the incumbent party’s election performance dropped to nearly zero, indicating no relationship between the two at all.

We accounted for these results using socionomic theory, which posits that waves of social mood regulate both the trend of the stock market and voters’ perception of the country’s leader.

When the leader seeks another term, the national mood as expressed through the stock market is a reliable indicator of the outcome. When the leader is not in the race, however, voters must base their decisions on other factors.

What about elections in which a sitting vice president gets their party’s nomination for president? After all, a sitting vice president is second-in-command in the incumbent administration.

Has the stock market predicted the outcomes of such elections?

That question became especially relevant in 2024 when President Joe Biden dropped out of the race and Vice President Kamala Harris received the incumbent party’s nomination.

Because our original 2012 study did not specifically isolate the case history of sitting vice -presidents who ran for president, I decided to do so.

The results are intriguing:

Prior to 2024, a total of eight candidates had won a major party’s nomination for president while serving as the sitting vice president. Table 1 shows the stock market’s performance in the years preceding each case.

Four of the vice presidents went on to win, while four lost.

A closer look at a handful of the elections illustrates the degree to which stock market performance has served as an inefficacious presidential election indicator for sitting vice presidents.

The market net declined over the one and two years prior to the elections of 1796 and 1836, while the market net rose over the one and two years prior to the elections of 1968 and 2000.

Yet the incumbent vice presidents won the presidency in 1796 and 1836, while the incumbent vice presidents lost their bids for the presidency in 1968 and 2000.

Incumbent Vice President George H.W. Bush won the White House in 1988 after the stock market registered a 77.96% net gain over the previous four years.

Yet, when the stock market registered a similar — in fact, slightly higher — four-year net gain of 79.42% prior to the 2000 election, incumbent Vice President Al Gore lost.

Stock Market Performance Preceding Each Sitting Vice President’s Run for the Presidency

Table 1

Zooming out to consider all eight elections, Table 2 reveals that the average percentage change in the stock market over the four years prior to the election was 41.95% when the vice president won and 24.62% when the vice president lost.

That result may appear consistent with the notion that a stronger market bodes well for the incumbent party.

But, as Table 2 also shows, the result reverses when we look at the average stock market performance in the one, two and three years leading up to the election.

Over those durations, the market’s average performance was stronger when the vice president went on to lose than when the vice president went on to win.

Average Stock Market Performance Preceding Wins and Losses for Sitting Vice Presidents Who Ran for President

Table 2

I repeated the analysis but omitted the elections of 1800 and 1860, years in which a sitting vice president was the nominee of a major party that differed from the incumbent party.

Table 3 shows the result: the stock market’s average performance was stronger for the eventual losers in the one, two, three and four years prior to the election.

Average Stock Market Performance Preceding Wins and Losses for Sitting Vice Presidents Who Ran for President on the Incumbent Party’s Ticket

Table 3

Does that mean that a stronger stock market is a negative sign for an incumbent vice president who seeks a promotion to the presidency?

It's possible, but the counterintuitive result is more likely due to the small number of data points that history has provided.

I'm inclined to hypothesize, as we did in the 2012 paper, that the stock market will be a reliable election indicator when a sitting president seeks another term. When the sitting president sits out the election, the stock market as an election indicator sits out, too.

Matt Lampert is a graduate of the University of Cambridge and former head of The Socionomics Institute (http://www.socionomics.net), publisher of The Socionomist.