Midterm Elections Are Bullish Even in a Bear Market

With the midterm elections behind us, does the market outlook improves given a now gridlocked Congress? Historically speaking, such is the case. As noted by Michael Cannivet via Forbes:

“Before you hit the panic ‘Sell Everything’ button, though, it’s worth considering at least one bullish catalyst on the horizon—voters head to the ballot box on November 8th.

The data is clear: Midterm elections are historically bullish for the stock market.”

While garnering less attention than a presidential election, midterm elections are important because they could lead to a change in control of the U.S. Senate and House of Representatives. Such can significantly impact policy, laws, and foreign relations. Historically, markets tend to favor “gridlock” in Washington as it dramatically reduces the risk of an adverse policy change regarding taxation, geopolitical conflict, or substantive changes to spending and debt.

Since 1950, there have been 18 midterm election cycles, and in the twelve months following each of those cycles, the stock market has had positive returns. Over the subsequent 12 months, stocks delivered an 18.56% average annualized gain compared to just 10.6% over all other years.

Midterm Elections, Midterm Elections Are Bullish Even In A Bear Market

Over a more extended 24-month period, stocks returned an average of 33.7% after a midterm election.

Midterm Elections, Midterm Elections Are Bullish Even In A Bear Market