Midterm Election Years and the Stock Market
When markets are down, many people will look for glimmers of hope that things might get better or turn around soon. While predicting a turnaround is always dicey, one glimmer of hope might lie in examining how markets perform during the four years of a U.S. Presidential administration.
According to Data from Ned Davis research, the median annualized returns (based on the Dow) for each year of presidential terms from 1900 through 2021, are:
- Year 1: 12.7%
- Year 2: 3.1% (the midterm year)
- Year 3: 14.8% (the pre-election year)
- Year 4: 7.4% (the election year)
Ned Davis Research also ran the numbers a second time, for 1948 through 2021, using the S&P 500 and a predecessor index. The S&P 500 is a broader index for the overall U.S. stock market than the Dow, but it has a shorter history, but the trend is similar.
- Year 1: 12.9%
- Year 2: 6.2%
- Year 3: 16.7%
- Year 4: 7.3%
There could be many explanations for this trend, but the one I prefer to lean on is that the stock market generally doesn’t like uncertainty—and election years create uncertainty. Regardless of your political views, some of that uncertainty is removed after an election.
Also, according to Bloomberg, since 1961, the average return of the S&P 500 during the 12 months leading up to a midterm election (Nov. 1 – Oct. 31) is 0.3%. But after the election is complete, the data usually improves. Consider the average returns over that same time period:
- 3 months after the mid-term elections (Nov. 1 – Jan. 31): 7.3%.
- 6 months after the mid-term election is (Nov. 1 – Apr. 20): 15.1%
- 12 months after the mid-terms (Nov. 1 – Oct. 31): 16.3%.
While trends like these can provide valuable insight, it’s also important to remember that past trends are not a guarantee for future market behavior. However, if you’re looking for a glimmer of hope during a downtown, the data trends after past midterm elections are encouraging.
Come November, we will see if this holds true.
David Jackson, MBA, CFP®, C(K)P™, is the Managing Partner for Investments at the Southern Springs Capital Group. For more information on Southern Springs Capital Group, visit www.southernspringscapital.com. Our offices are located at 2555 Meridian Boulevard in Franklin. We can be reached at 615-905-4585.
Any opinions are those of Southern Springs Capital Group and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance is not indicative of future results. Diversification and asset allocation do not ensure a profit or protect against a loss.
