Midterm Magic – US Midterm Election
As the midterm elections roll around, politics is not the only thing at stake. The outcome of the election will have an impact on the stock market, but in more ways than one. Superstition will always play a major role in investor sentiment, and there isn’t one like the post-midterm rally that we have historically seen.
The S&P 500 has posted a positive gain in the one-year period after every midterm election since 1942, and these aren’t just baby gains. Some periods witnessed a bull market form in that time, and the most recent occurrence in 2018 gave us returns of 8 percent. Calling this a superstition may be far-fetched considering the midterm elections help paint part of the economic picture, but it’s an interesting phenomenon indeed.
Many wonder if this trend will continue as the midterm elections are slated to kick off next month. Right now, it feels as if any positivity surrounding the markets will be impossible to find. Indices are at their lowest point since late 2020, and many feel this is just the start of an extended decline in the stock market. What puts this streak at risk is the likelihood of further rate hikes after the midterms. The Fed is hell-bent on bringing inflation down, and the effects of further interest rate hikes will be displayed in 2023. On the political side, Democrats maintaining control will likely point to spending proposals regarding healthcare and childcare, which are things they weren’t able to achieve in the last 2 years. If Republicans overtake Congress, we can expect little to no major policy implementation, which would be an interesting future.
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.