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Democratic presidential candidate and former Vice President Joe Biden speaks about his plans to combat racial inequality at a campaign event in Wilmington, Delaware on July 28.

Jonathan Ernst/Reuters

President Donald Trump has often cited the stock market’s gains as a barometer for his administration’s success. And if history is a guide, Wall Street’s fortunes in the next few months could signal whether America gives Trump another four years in the Oval Office.

More often than not a falling stock market has pointed to a rebuke of the previous administration at the polls.

“A market decline from July 31 through Oct. 31 has signalled the replacement of the incumbent nearly 90% of the time, failing only once since World War II,” said Sam Stovall, chief investment strategist at CFRA.

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Since 1944, the incumbent party’s candidate has been ousted seven out of the eight times that stocks have fallen in the three months before an election. Conversely, a rising stock market over that period has seen the incumbent party keep the White House nine times out of 11.

Massive aid for the economy and the Federal Reserve’s promise of nearly 0% interest rates have propelled stocks’ rebound since March, when the coronavirus pandemic shut much of the economy and sparked a 30% plunge in the S&P 500. Improvements in hiring, retail sales and progress towards a COVID-19 vaccine have helped prolong the rally.

The prospect of further gains remains far from certain, however, with the U.S. still mired in recession. The economy plunged by a record-shattering 32.9% annual rate last quarter. Unemployment is in double-digits. And a recent resurgence in new coronavirus cases across much of the country threatens economic recovery as states order many businesses to close again.

Even if the market continues to climb, Wall Street’s gains may not be as predictive of what happens in November.

“It really is an election that does hinge on how the economy responds to COVID-19 in the next three months,” said Ryan Detrick, chief investment strategist for LPL Financial.

Only one president since the Great Depression has held onto the White House when unemployment was in double digits: Franklin Delanoe Roosevelt. And since 1900, only one has won re-election with a recession in the second half of his first term: William McKinley.

A survey by the Associated Press-NORC Center for Public Affairs Research illustrates Trump’s re-election challenge. It found 8 in 10 Americans say the country is heading in the wrong direction, more than at any point since Trump took office. The poll also found that just 38% of Americans say the national economy is good, down from 67% in January, before the pandemic.

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“The COVID-19 crisis continues to be the main driver of the stock market,” Stovall said. “If those who are being polled feel that the president is not accurately addressing the crisis, is downplaying the severity of it and appears to only be pushing for a reopening of the economy to help him get re-elected, that lack of sincerity will play against him.”

Betting markets have also made a big shift toward a win by presumptive Democratic nominee Joe Biden, according to a report this week from RBC Capital Markets.

“It remains to be seen if a deceleration of cases in the U.S. (which may be starting to occur) will help Trump’s chances for re-election while diminishing Biden’s chances of winning,” RBC Capital Markets analysts wrote.

Wall Street analysts are preparing clients for the possibility of political turnover in Washington and what it could mean for the stock market.

For example, Biden favours lifting the corporate tax rate from 21% to 28%, which some analysts expect could be a drag on stocks, at least initially. RBC Capital Markets analysts project that such a tax hike could trim annual earnings per share for the S&P 500 by 9%.

Technology, communication services and consumer discretionary sectors have been moving in sync with Biden’s improved betting odds, while energy, financials and industrials -- sectors that fared best after Trump was elected in 2016 -- have been declining, according to RBC Capital Markets.

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Stocks have tended to rise regardless of whether a Democrat or Republican holds the Oval Office, though not quite to the same degree.

Since World War II, the S&P 500 has risen 9.5% under Democratic administrations and 6.2% under Republican ones, at average compound annual rates.

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