Traditionally, the stock market tends to rise after a midterm election irrespective of the outcome. In fact, in the current situation where the Democrats have taken control of the House of Representatives while GOP retained the Senate, stocks are poised to perform even better. To top it, the U.S. economy is in sound shape and trade war fears have somewhat subsided.
Given such bullishness, investing in sound stocks that can make the most of the current scenario seems prudent.
After Midterms, Stocks Could Jump 20%
According to The Goldman Sachs Group, Inc. (GS – Free Report), the S&P 500’s returns on an average has always improved in November especially after midterms, according to data going back to 1970. This has aided the month of November to generate a return of 1.09% during a presidential election, slightly more than 1.08% generated during November in an off year.
The current split Congress, in fact, further bodes well for the stock markets’ return in the near future. In the present situation, where Democrats control the House and Republicans’ the Senate, the S&P 500 is widely expected to gain 20% on an average in the following one year period. Meanwhile, if Republicans had won the House and Democrats the Senate, then the S&P 500 was anticipated to gain a meagre 3%.
However, if we still ignore the outcome, the equity market is widely expected to gain momentum post-midterm. Per S&P Capital IQ, the S&P 500 has increased on average 15.3% in the six months following midterm election in the third year of a given presidency, which is incidentally this year. The research also showed that the frequency of advance (FoA) for this occurrence was 94% of the overall time period of Oct 31, 1944-Sep 29, 2014.
(Source: S&P Capital IQ)
Stephen McBride, the editor of RiskHedge report, also chipped in and said that stocks have climbed an average of 17% in the year after a midterm election since 1946. McBride too acknowledged that it’s the third year of a presidential term and historically the strongest year for the stock market.
