Investors Bet on Midterm Bounce for Stock Market

“The markets prefer a more divided government,” said Eric P. Beiley, the executive managing director of Steward Partners, a wealth management firm. “If the Democrats hold I think you could see markets decline,” he added.

But the data on past market performance around the midterms isn’t always so clear.

According to Sam Stovall, the chief investment strategist at CFRA, a research firm, the SP 500 has risen by an average of 0.6 percent the day after midterm results are announced, for data going back to 1970. The largest recent jump came in 2018, when the index rose more than 2 percent after Democrats flipped the House during President Donald J. Trump’s term.

However, analysts at the research and indexing firm MSCI looked at the performance of U.S. stocks in the three months before and after midterms since 1978, and found that investors seemed to prefer the status quo — whatever it was at the time — versus a change in control.

“The status quo generally translates into continued stability of the policy and economic road map with the reigning political party maintaining similar levels of control in terms of achieving its mandate,” the MSCI analysts wrote.

Taking a longer view, Megan Horneman, the chief investment officer at Verdence Capital Advisors, noted that of the potential outcomes after the midterms — Democrats retain control, Republicans sweep or control of the House and Senate is split — the average annual return of the SP 500 in each case was over 10 percent, going back to 1929.

Article source: https://www.nytimes.com/2022/11/08/business/midterms-stock-market.html