We are just a few weeks away from this administration’s mid-term elections. Mid-term elections occur in the second year of a president’s four-year term. So, for Biden, who was sworn in on January 20th, 2021, we are approaching the completion of his first two years in office, hence the name, mid-term elections.
Mid-term elections have an impressive track record for signaling the start of a positive year for the stock market. Here’s how impressive: Since the mid-term elections in 1942, the S&P 500 index has gone up every one-year period following the elections. That’s amazing! Plus, the average gain during those one-year periods has been almost 15%. So, if this trend holds true, we should expect stocks to go up from this November through November 2023. We could sure use it.
Most investors believe this happens because the elections remove some uncertainty in the markets. We will know who controls what gets passed and what doesn’t in Congress, specifically any changes in tax or fiscal policy, and also where government money will be spent.
Here is something else we should expect from this year’s mid-terms: a changing of the guard in Congress. Over the past 19 mid-term cycles, the party holding the presidency has lost an average of 26 seats in the House of Representatives and 4 in the Senate, regardless of how the economy or the stock market had performed. If this trend holds true, we should see political gridlock in D.C. This stinks for getting things done by Congress or the President, but it does bode well for stocks because there will most likely be no policy changes and no changes in the law that could adversely affect corporate profits and growth.
The timing could coincide with inflation peaking, which would really boost the stock market. Regardless, buckle up for what could be a wild end of the year for the financial markets.
Please comment or send an email if you have any questions. Thanks!
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
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