Why 'Trump trades' and 'Harris trades' could be just regular stock-market bets

Dow Jones10-30 21:39

MW Why 'Trump trades' and 'Harris trades' could be just regular stock-market bets

By Mark Hulbert

Here's what the S&P 500 sectors are really saying about their presidential election preference

Wall Street's stories tell us next to nothing about the November election's outcome.

Wall Street's current narrative is that investors would prefer former U.S. president Donald Trump, the Republican candidate, to win the 2024 presidential election over U.S. Vice President Kamala Harris, the Democratic candidate.

The data don't support this. On the contrary, most of the stock market's primary sectors have rallied in those weeks in which Harris's chances of victory have risen. And most have fallen when Trump's chances have gone up. While these results don't prove that Wall Street prefers Harris over Trump - correlation is not causation, after all - they run directly counter to the notion that Wall Street prefers a second Trump presidency.

These results emerged upon analyzing the performance of the 11 primary stock-market sectors since late July - when U.S. President Joe Biden withdrew from the presidential race and Harris became the Democratic candidate. (Specifically, I focused on the returns of a dozen Select Sector SPDR ETFs.) To calculate the two candidates' chances of winning, I turned to the Harris and Trump contracts at PredictIt.org. I focused on weekly changes in these odds, calculated from Friday's close to Friday's close.

The chart above summarizes the results. Notice that the blue columns are all positive; they reflect average weekly gains in those weeks in which the Harris PredictIt contract rose. This is true not only for the 11 primary sectors, but also for the S&P 500 SPX itself (represented by the SPDR S&P 500 ETF SPY.

The red columns reflect the sectors' average weekly return in weeks when the Trump contract at PredictIt rose in price. Notice that the red columns are lower than the blue columns for all but one sector. The exception is the Consumer Discretionary Select Sector SPDR XLY.

The best spin that a Trump voter can put on these results is that they are not statistically significant. This lack of significance is not a big surprise, since we have only three months of data to work with. But there's a big difference between, on the one hand, challenging the statistical significance of data that otherwise strongly suggest Wall Street prefers Harris and, on the other hand, insisting that Wall Street actually prefers Trump.

Wall Street is not a monolith

There's a more general point worth making too: No one really knows what motivates investors when they choose to buy, sell or hold. This is a point that Morgan Stanley's chief U.S. stock market strategist Mike Wilson implicitly made recently. He pointed out that many of what commentators insist are "Trump trades" can more easily be explained by fundamentals.

So it may be true, as commentators are arguing, that a majority of investors prefer Trump over Harris. But the opposite could also be true. There's no way of knowing, and absent such knowing, Wall Street's stories tell us next to nothing about the November election's outcome.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com

More: The stock market still leans to this candidate winning the presidential election

Also read: The stock market gains the most when this political party occupies the White House

-Mark Hulbert

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

 

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October 30, 2024 09:39 ET (13:39 GMT)

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