The recent stock sell-off has one widely followed indicator flashing trouble for Trump's reelection chances

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  • Since 1928, the stock market has correctly signaled which candidate would win the US presidential election 87% of the time, according to a widely followed stock market indicator.
  • And since 1984, the stock market indicator has correctly signaled the outcome of every presidential election.
  • The indicator is based on the price action of stocks in the three months leading up to the election.
  • With less than a week away from the 2020 election, the stock market has flipped and is now signaling a Joe Biden victory, according to the indicator.
  • Visit Business Insider’s homepage for more stories.

Since 1928, the stock market has correctly signaled who would win the US presidential election 87% of the time, according to historical data from LPL.

And going back to 1984, the S&P 500 has correctly signaled the winner 100% of the time.

The widely followed market election indicator is based on the price action of stocks in the three months leading up to the presidential election.

When stocks post a positive return in the three months preceding the election, it usually signals that the incumbent political party will win in November. 

And when stocks post a negative return in the three months preceding the election, it tends to signal that the opposing political party will win.

Read More: 7 stocks to buy – in addition to the FAANMGs – for a second wave of COVID-19, according to a Wall Street expert

For example, in 2016, when Hillary Clinton led nearly all of the polls and was the clear favorite, the stock market correctly signaled that Donald Trump would win the election based on a negative return of 2.3% in the three months prior to Election Day.

Now, the widely followed stock market indicator is signaling that President Trump’s chances of reelection are dwindling.

The 7% selloff in stocks since October 12 has flipped the market returns from positive to negative since August 3.

If the S&P 500 fails to post a positive three-month return by November 3, the market will indicate a Joe Biden presidency. 

As of Thursday morning trades, the stock market was hovering just below the level necessary to signal a Trump reelection.

With three full trading days left until the polls close on November 3, the presidential election is a close call, according to this widely followed stock market indicator.  

Read More: Here’s the 6 killer pieces of advice for trading European stocks after the US election, from investment giants UBS and Barclays

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