Written by: Jonathan Boyar | Boyar Asset Management
The midterm elections are just around the corner, and our crystal ball’s view of the results is cloudy. Regardless of the outcome, investors should not make significant changes to their portfolios based on election results. Of 19 presidential elections since the end of World War II, just 10 brought a change in the party occupying the Oval Office. The 38 Congresses during that same period saw only 8 changes in control of the House and just 14 in control of the Senate. So, no matter how high emotions run over politics, investors would do well to keep their emotions in check and focus instead on the fundamentals of the companies they own or would like to buy.
A Look Ahead
What should US stock market investors expect for the near and medium term? The historical record might provide some comfort. According to data from the Stock Trader’s Almanac, since World War II twelve bear markets twelve bear markets (which represents most bear markets that have taken place over the same period) have ended in October: 1946, 1957, 1960, 1962, 1966, 1974, 1987, 1990, 1998, 2001, 2002, and — for all practical purposes — 2011. (At one point in 2011 the S&P 500 had declined 19.4%, just shy of the technical definition of a bear market.).
Even more encouraging, seven of these years coincided with a midterm election (as 2022 does, with congressional elections occurring on November 8). As Jeff Hirsch of the Stock Trader’s Almanac notes, “The fourth quarter of the midterm years combines with the first and second quarters of the pre[presidential]- election years for the best three consecutive quarter span for the market, averaging 19.3% for the DJIA and 20% for the S&P 500 (since 1949), and an amazing 29.3% for the NASDAQ (since 1971).” Other data indicates the S&P 500 moving higher in every 1-year period following midterms since 1942, with gains averaging 15% since the end of World War II.
We would not be surprised to see a fourth-quarter rally, as the US equity market is giving every impression of being majorly oversold at present, but investors should temper their expectations in the face of many near-term headwinds, including the war in Ukraine, a hawkish Federal Reserve, ongoing supply chain concerns, and continuing high inflation.