Statistically Significant Evidence That Hillary Clinton Is Better For The Stock Market Than Donald Trump

Political pundits have another five months to argue about which of the leading presidential candidates would be best for the U.S. economy. But politics aside, Hillary Clinton may be the best choice for stock investors in the near term for one simple reason: President Barack Obama. More specifically, the fact that Clinton and Obama are both members of the same party could provide a boost for the stock market if Clinton takes a commanding lead in the presidential race.

Historically, the old Wall Street adage “sell in May and go away” has not been a smart trade in U.S. presidential election years. In fact, since 1896, the Dow Jones Industrial Average has generated an average return of more than 4.0 percent from the beginning of May through the end of October in election years.

However, in election years in which the incumbent party wins, the market averages a stellar 7.4 percent return during that six-month stretch. During years in which the incumbent party eventually loses the election, the Dow has averaged a 1.1 percent loss from May to November.

Related Link: Donald Trump Could Impact The U.S. Economy Even Before The Election

Investors typically are wary of political unpredictability, and the election of the incumbent party is often perceived as a “more of the same” transition. A party transition, however, carries much more uncertainty.

Statistically speaking, these stock market returns are more than just coincidence. The correlation between the Dow’s May–October returns and the fate of the incumbent party in the general election is significant at a 95 percent confidence level.

In other words, if the Dow Jones Industrial Average finishes October above 17.773.63, its closing price on April 29, it will be very good news for Hillary Clinton. Although, as always, correlation is not causation, and a rising stock market is no guarantee of a Clinton victory.

So far in 2016, the SPDR Dow Jones Industrial Average ETF DIA is up 1.0 percent, slightly better than the SPDR S&P 500 ETF Trust SPY’s 0.5 percent gain.

Disclosure: The author holds no position in the stocks mentioned.