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  • Writer's pictureKyle Rolek, Retirement Planning Specialist

S&P 500 Performance Following Midterm Elections



With high inflation, a slowing economy, and geopolitical tensions top of mind, many may be wondering what positive catalyst could potentially put an end to the historic market declines that have occurred so far this year.


The midterm elections coming up on November 8th may be the positive catalyst needed to stabilize markets.


Historically, the 12 month period immediately following midterm elections has been one of the strongest time periods for S&P 500 index performance.


As the image below shows, in the 12 month period following midterm elections since 1950:

  • The S&P 500 has been positive 18 out of 18 times, or 100% of the time

  • The average S&P 500 return has been 18.6%

  • The average S&P 500 return has been 10.6% for all years between 1950 - 2018

  • S&P 500 returns have been about 8% higher in the 12-months following midterms than the average year


The two-year period following midterms is also very historically strong.


As the image below shows, in the two-year period following midterm elections since 1950, the S&P 500 has averaged a total return of about 33%, or 16% per year.


This is also far above the long-term average return of about 10% per year for the S&P 500 index.


Have any of the 12-month periods following mid-term elections included a recession?


Yes.


Two of the 18 periods above following midterm elections included recessions (1974 and 1990).


The S&P 500 index was still positive during these two periods in spite of recession.


In the 12 months following the 1974 midterms, the S&P 500 Index gained +24% in spite of the recession taking place at the time.


In the 12 months following the 1990 midterms, the S&P 500 Index gained +29% in spite of recession.


Why has the S&P 500 performed so well following midterm elections in the past?


There's no way to prove with certainty why this has occurred.


It's possible it's purely due to chance. Here are some theories of cause and effect...


Midterm elections have historically lead to a more divided government with the sitting President's party losing seats in congress.


One theory for S&P 500 outperformance is that divided government leads to more centrist policy, and centrist policy creates more certainty which market's prefer.


Another theory is that the S&P 500 has historically performed poorly during midterm election years in the time period leading up to midterms (returns are about flat, well below long-term averages) in part due to the uncertainty that midterm elections create. Once midterm elections occur and the uncertainty is lifted, markets have bounced regardless of outcome.


Could it be different this time?


Yes. Past performance doesn't guarantee future performance.


It's possible that inflation, an economic slowdown, and geopolitical turmoil could overwhelm the historically positive catalyst of midterm elections.


However, with market sentiment currently at historic levels of negativity, year-to-date performance already among the worst years ever for the S&P 500, and year-to-date performance by far the worst ever for bonds, it's possible that midterm elections provide the positive catalyst needed to stabilize markets just as they've done many times before.



Want To Discuss This Individually?


1 - For clients: Call or email me any time as always.


2 - For non-clients: Complete the form on the website to request a retirement planning consultation: www.rolekretirement.com



This is article is for informational purposes only and should not be considered as tax or legal advice. Advice is only provided after entering into an Advisory Agreement with the Advisor. See other disclosure here: Disclosures

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Article Disclosures

 

Informational Purposes

The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.

 

Views, Opinions, and Forward Looking Statements of the Firm

The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.

 

Information Obtained from a Third Party Source

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.

Illustrative Purposes​

The information contained is for illustrative purposes only.

Target Assumptions

Any target assumptions described in the articles are estimates based on certain assumptions and analysis made by the advisor. There is no guarantee that the estimates will be achieved.

 

If you have any questions regarding our disclosures, please contact us at 267-427-5667 or kyle.rolek@rolekretirement.com

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