Some analysts believe that the US stock market is one of the best indicators for predicting whether the ruling party's candidate will win the presidential election.

This is important because the information on the electronic prediction market is diverse, and until now, many people have resorted to the electronic prediction market to obtain reliable predictions. But many fans of this market are now disappointed with the mixed information.

For example, according to a survey of some of the most well-known prediction markets conducted earlier this week, the probability of Biden's re-election currently ranges from less than 38% to as high as 76%, depending on personal concerns. The scope is so broad that it's hard for people to pay too much attention to any prediction.

But what about other economic, financial, and sentiment indicators? To find answers, US financial analyst Mark Hulbert (Mark Hulbert) analyzed the US stock market, the economy measured by real GDP, the Chamber of Commerce's consumer confidence index, and the University of Michigan's consumer sentiment survey. For each indicator, he focuses on the yearly changes since election day. In the end, he found that only one (stock index) had a significant correlation with the ruling party's chance of winning (statisticians often use a 95% confidence level when judging whether a model is true).

The following image summarizes his findings. To create this chart, Herbert compiled the performance of the Dow Jones Industrial Average (DJIA) from the beginning of the year to election day in all election years since its inception in 1896, and divided the elections over these years into four equal-sized groups. As shown below, the possibility of candidates from the ruling party being re-elected increased in line with the index's performance from the beginning of the year to election day.

According to historical correlations and the Dow Jones index's rise of only 5.6% so far this year, the chances of Biden being re-elected are 58.8%. If the stock market rises further between now and election day, this chance will rise; if the stock market falls, this chance will decrease.

Even if electronic prediction markets don't send out such mixed messages, it's hard to prove that their historical record in predicting elections is superior to the stock market. This is because without a large sample, it is difficult for a model to meet traditional standards of statistical significance. The Iowa Electronics Market (IEM), for example, is one of the oldest members of this type of market and was founded in 1988. As a result, its historical record covers only 9 presidential elections.

James Carville (James Carville) was a strategic adviser to former President Bill Clinton in the 1992 election. He famously said, “Idiot, the key is the economy.” He used this phrase to remind Clinton's campaign that compared to the economy, all other issues are overshadowed, and that the economy is the key factor that determines whether the ruling party can stay in the White House. But Herbert thinks maybe we should change Cavill's words to: “Idiot, the key is the stock market.”

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