Markets & Midterm Elections
3min video
With Midterm Elections right around the corner, let’s look at how the stock market performs with different outcomes.
Video Transcript:
So currently, the Democrats narrowly control both houses of congress, as you can see on this chart. Holding eight more seats in the house, and even though the senate is tied at 50/50, VP Harris gets the tie-breaking vote.
So, in terms of your money – what is the outcome that the market wants? Well, I always like to say the market doesn’t care if it’s blue or red, just that it is green. All the stock market cares about is making money or company earnings. So, when there is a congress that is either all blue or all red, typically, there is more of a possibility that new legislation will be passed. And because it’s an unknown, the market will discount that unknown into the price today. However, if there is a divided congress, then the probability of new policies being passed that would affect corporate earnings in a big way is much less. So, I would expect the market to rally off of congress being divided. Because it's easier to price in nothing getting done than the unknown getting done if that makes sense….
Take a look at this chart. On the x-axis, we look at the -150 days before the election and the 250 days following each midterm election for the last 70 years. Regardless of the outcome, on average, markets tend to rally. This is because the market hates uncertainty. Once the election is over, we can start pricing things off of some certainty, good, bad, or indifferent.
One final chart showing nearly a century of US stock market returns suggests that making investment decisions based on who has the upper hand in the house and senate is unlikely to lead to better investment outcomes. Actions by congress impacted returns over this time. Still, stocks trended higher regardless of who had political control….. this is because other factors like geopolitical events, interest rate changes, and technological advances do too.
Remember this, as shareholders, we invest in companies, not a political party, and companies focus on serving their customers and growing their businesses, regardless of what happens in Washington.
As always, stay the course and stay on point.
