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Observations on the US Midterm Elections

| November 07, 2018
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Political ads are finally over, for now, and the US midterm elections on November 6th resulted in a divided government—the widely expected outcome—with the Democratic Party gaining control of the House of Representatives while the Republican Party maintained their majority in the Senate. We believe the markets were largely priced for this outcome and therefore expect limited effect on market volatility. In general, the markets care more about fundamentals and policies than politics, with markets showing greater resilience towards political events or rhetoric that produce little action. With that being said, looking back historically, there is a compelling pattern of stock market trends that gives us a reason to be optimistic for the next quarter and into 2019. Below are 5 charts relating to midterm year stock performance history, as well as specific data on average returns after a split congress outcome. 

-Jay

5 Midterm Charts to Know

Chart 1 – Most equity gains tend to happen late in the year during a midterm year.

Gains During a Midterm Year Tended to Happen Late

Chart 2 – Since 1946, the S&P 500 Index has been higher 12 months after every single midterm election. That’s 18 for 18.

Stocks Have Done Well After Midterm Elections

Chart 3 – The S&P 500’s closing low for the month of October was October 29. Since 1950 in mid-term election years, the S&P 500 gained more than 10% on average from the October low close until the end of the year.

Chart 4 – Under a Republican president, the best scenario for stocks has been a split Congress. 

Chart 5 – The fourth quarter of a midterm year historically have been the best quarter of the four-year presidential cycle. Not to be outdone, the next two quarters have been quite strong as well.

IMPORTANT DISCLOSURES

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. All performance referenced is historical and is no guarantee of future results.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

This research material has been prepared by LPL Financial LLC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

The investment products sold through LPL Financial are not insured deposits and are not FDIC/NCUA insured. These products are not bank/credit union obligations and are not endorsed, recommended or guaranteed by any bank/credit union or any government agency. The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible.

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