History suggests the Dow will take a bite out of Hillary Clinton’s lead

McClellan: Market uptrend into October favors Clinton

Democratic presidential nominee Hillary Clinton holds a substantial lead over Republican Donald Trump in most polls, but one market trend could narrow the gap as Election Day nears, according to technical analyst Tom McClellan.

The trajectory of the Dow Jones industrial average has predicted the outcome of the last four White House races, the editor of The McClellan Market Report said Friday. In fact, the stock market tends to front run changes in polls, with the Dow currently forecasting the direction of polls about eight days ahead of their release, he told CNBC's "Squawk on the Street."

That's because investors can immediately express their view on the state of business and the economy by either buying or selling stocks, whereas polls take time to compile once the survey work wraps up, McClellan said. Consequently, polls reflect sentiment at a moment in time in the near past.

The mood on Wall Street, expressed through buying and selling, dribbles onto Main Street when Americans hear that stocks rose or fell. In a rising market, they tend to feel upbeat and hold a more favorable view of the sitting president. When they fall, they tend to blame the incumbent party for their misfortunes, McClellan said.

Here's the problem for Clinton: Stocks typically experience a seasonal decline in September and October, setting up an unfavorable runup for the former secretary of state to the election on Nov. 8.

"If we see the decline into October that I'm expecting, then I would expect that the election results are going to get a lot more interesting and not see the big lead for Clinton that we're seeing right now," McClellan said.

A Real Clear Politics average of national polls shows Clinton holds a 5.5 percentage point lead in a four-way race among Trump, Libertarian Party candidate Gary Johnson and Green Party candidate Jill Stein.

The NBC News battleground map suggests Clinton is likely to clinch 288 electoral college votes, above the 270-count threshold needed to win the presidency. It sees Trump positioned to take 174 votes, and 76 up for grabs.