How the Stock Market Will Forecast Who Wins the White House in 2020

Who will win the 2020 presidential election? Turns out the stock market has an uncanny knack for predicting the victor.

If the S&P 500 is higher three months before the balloting, the incumbent party’s nominee—that would be the GOP this year—triumphs. If not, the challenger takes the White House, according to LPL Financial.

This phenomenon has held mostly true since 1928 (right after formation of what’s now the S&P 500). The index has predicted the election winner 87% of the time, and, since 1984, it’s been accurate in every single presidential year.

“Think about it; no one expected Hillary Clinton to lose back in 2016, no one except the stock market, that is,” wrote Ryan Detrick, LPL’s senior market strategist. “The Dow had a nine-day losing streak directly ahead of the election, while copper (more of a President Trump infrastructure play) was up a record 14 days in a row, setting the stage for the change in party leadership in the White House.”

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The market-election nexus theory makes some sense. The market is a gauge of how investors feel about the future. If they believe that sunny days lie ahead, they tend to reward the sitting president for stewardship of the economy. And up until COVID-19 kicked the legs out from under economic growth, the stock market had been roaring. After a harrowing plunge, it rebounded sharply starting in late March. Despite a downdraft last week, owing to fears over virus spikes, the S&P 500 is about 8% below the mid-February peak.

The question becomes: Will the market keep on trucking northward? A lot of that has to do with what happens on the plague front. The market’s turnaround also is based on heavy stimulus from Washington, via Congress and the Federal Reserve, as well as optimism over business re-openings.

Corporate earnings usually drive the market, and they are expected to stink for the just-ended second quarter, down 43.9%, according to the FactSet consensus. That would be the worst dive since fourth quarter 2008 (down 69.1%). The estimate for the third quarter is better, a 25.4% decrease—followed by a 12.8% reduction for the fourth period. On the other hand, everyone anticipates that the second quarter’s showing will be lousy, so that likely is priced in.

Understandably, President Donald Trump has put great store in how the economy and the market are faring. Whether he gets a second term, or presumptive Democratic nominee Joe Biden supplants him, is to be decided at the polling place, and on Wall Street.

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Tags: 2020 Presidential Election, Coronavirus, COVID-19, Donald Trump, Earnings, Economic Growth, Hillary Clinton, Joe Biden, LPL Financial, Ryan Detrick, S&P 500

While most institutional investors seem to be faring worse during the economic fallout from the COVID-19 pandemic than they did during the Great Recession, university endowments have so far performed far better this year than they did in 2008.

A survey from the National Association of College and University Business Officers (NACUBO) and insurance firm TIAA found that university endowments lost an average of 13.4% net of fees during the first quarter of the year, which is a lot better than the average 22.5% loss endowments suffered during the Great Recession of 2008-09.

During the spring of 2009, following the Great Recession, the Association of Governing Boards of Universities and Colleges (AGB), NACUBO, and the Commonfund Institute conducted a survey of colleges, universities, and affiliated foundations in states where the Uniform Prudent Management of Institutional Funds Act (UPMIFA) had been enacted. UPMIFA provides guidance on investment decisions and endowment expenditures for nonprofit and charitable organizations.

NACUBO says one of the main findings of the survey was that UPMIFA had significantly enhanced the ability of colleges, universities, and other charities to provide sustained funding for endowed purposes during the financial crisis. It also encouraged boards to strengthen their processes for determining prudent endowment spending. The survey found that institutions and foundations had taken advantage of the flexibility UPMIFA provided to increase funding available for student and faculty support and other endowed purposes.

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“While COVID-19 has created crisis-level economic conditions, the past decade has given college, university, and foundation boards the opportunity to adapt to the standards of UPMIFA and prepare for decisionmaking when faced again with underwater endowment spending,” NACUBO said.

NACUBO and TIAA issued this year’s survey to learn more about the impact of the pandemic on endowment values and investment and spending strategies. The survey covered 333 institutions and the average endowment size among them was $547.4 million. All the endowments in the survey saw losses during the quarter, with smaller endowments reporting larger losses than bigger endowments.

It’s likely that larger endowments outperformed smaller ones because smaller endowments tend to be more heavily invested in US equities than larger ones. Although 2020 figures are not yet available, in 2019, endowments over $1 billion had only 11.2% of their investments in US equities, while those with $100 million or less had significantly more exposure, and the smaller the endowment, the larger its exposure to US equities. For example, endowments with $25 million to $50 million had 37.8% in US equities, while those with $25 million or less had 45.7% in US equities.

“Those smaller endowments had strong returns in a strong stock market but are at greater risk for investment losses when equity markets decline,” NACUBO said. “This is likely the most significant factor behind these results. However, with smaller investment portfolios, the upside is that those institutions were, in all likelihood, less reliant on their endowments as a significant source of operating revenue.”

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Tags: Coronavirus, COVID-19, Endowments, Financial Crisis, Great Recession, NACUBO, National Association of College and University Business Officers, Pandemic, Survey, TIAA