Financial Planning Fridays #16: Market Performance After Midterm Elections

Today we wanted to talk with you about the historical market performance after midterm elections. One of our favorite hobbies at Presilium is looking back through history for clues on what may happen now and in the future. We recently finished a heavily contested mid-term election in the U.S. on November 8, 2022 and consequently wanted to analyze what happened in the market after previous midterm election results.

We have had 18 midterm elections since 1950. This chart shows the 12 month return of the S&P 500 after every one of them:

As you can see, the market has been positive for the 12 months following every single midterm election. In fact, the average 12 month return immediately following a midterm election has been 18.6%. Furthermore, the return for the 24 months after a midterm election has been 33.7%.

This may happen for a few reasons including the tendency for the midterm elections to create additional gridlock in Washington, D.C. The market has tended to do better when there is more certainty in what the government will be able to accomplish or not accomplish going forward. The sitting president’s party has lost an average of 25 congressional seats and three senate seats after every midterm election since Harry Truman in 1950 which has the tendency to create additional gridlock and, in turn, improve market results.

In the 2022 midterm election, the Republicans gained nine seats which was enough to gain control of congress. This leaves us with the combination that has historically been best for stocks: a Democratic White House with a Republican Congress.

These are the returns of the S&P 500 from 1950-2021 organized by the party of the President and Congress. This shows that the average return of the S&P 500 with a Democratic president and Republican Congress—like we have now—has been 16.3% per year. This is much higher than the average return of 11.6% per year over the same 71 year period.

The S&P 500 was down about 20% for the year on midterm election day in 2022. In the weeks following, the market was up about four percent.

We don’t know exactly what will happen next, however, if we use history as a guide, this is likely a good time to buy stocks and to make long-term investments as we could continue to see gains like we have seen after the previous 18 midterm elections.

One thing from politics everyone can agree on, especially right now, is that it can be very polarizing and emotional. And it is exactly those moments of high emotion that can be the exact wrong time to make any major updates to one’s portfolio.

We welcome you to forward this to anyone who may be concerned about the current political environment and its potential impact on their portfolio, and who may benefit from a longer conversation on where the market may go from here.

Be on the lookout for our next Financial Planning Fridays episode. Subscribe to our Youtube Channel so you never miss an episode. Or contact us directly; schedule your 15-minute call with us today.