Stocks have had their typical midterm election year swoon, but they usually improve regardless of the outcome. The S&P 500 has been up in the year after every midterm election since 1942! Stocks have performed best under a divided government, the most likely outcome according to betting odds.
With the midterm elections only about a month away, it is worth considering the implications of any change in government control. This analysis will strive to be non-partisan since investors would be wise to eschew party politics when selecting investments. Some were concerned when President Trump was elected, and the S&P 500 had a total return of almost 24% in the next year. Likewise, the stocks had a total return of over 40% in the year after President Biden’s election in 2020. Too many other factors impact the stock market to attribute the performance to one person, regardless of party affiliation, especially since the government also has two legislative branches.
Interestingly, the stock market in 2022 has generally followed the downward path typical for a midterm election year since 1962, according to Dan Clifton at Strategas. The S&P 500 is down slightly more than the typical 19% intra-year decline, but the news improves if stocks stick to the script. Stocks have historically bottomed in October and rallied by an average of almost 32% in the next twelve months.
