Historical S&P 500 data show that stocks have historically performed strongly in the months following midterm elections, according to market analysis by Kenneth Fisher. Fisher argues that the congressional gridlock that often follows midterms can benefit stocks, regardless of which party controls Washington.
Historical Trends in Congressional Seat Losses
Data spanning midterm elections from 1914 to 2022 show that the president’s party shed House seats in 89.3% of midterms, losing an average of 30 seats. In Senate midterms, the president’s party lost seats 71.4% of the time, averaging a loss of four seats.
With the Republican President Donald Trump being in office, when broken down by political party:
- Republican presidents averaged a loss of 28 House seats and 4 Senate seats.
- Democratic presidents averaged a loss of 32 House seats and 4 Senate seats.
The S&P 500 ‘Midterm Miracle’
Despite these losses, Fisher noted that midterm elections create congressional gridlock, serving as “a powerful positive for global stocks.” S&P 500 total return data from 1926 to 2022 shows stocks enter their “most consistently positive nine-month run” after midterm elections.
Historical performance metrics during this cycle show:
- President’s Second Year, Q4: 6.4% average return (84% positive rate)
- President’s Third Year, Q1: 6.6% average return (88% positive rate)
- President’s Third Year, Q2: 5.6% average return (88% positive rate)
Across the full post-midterm period, Fisher calculates an average total return of 19.8%, with positive returns in 92% of historical cycles, also known as the “midterm miracle.”
Political Ideology Versus Market Performance
Fisher emphasized that “party doesn’t matter” for stock outcomes. He stated that investors are often “blinded by ideology,” causing them to “always expect disaster and all hell to break loose” when their side loses seats.
However, Fisher observed that “subsequent legislative quiet brings positive surprise for stocks,” as markets historically respond favorably to reduced legislative activity following midterm elections.
How Has the Stock Market Performed?
The S&P 500 index has advanced 12.57% year-to-date. Similarly, the Nasdaq Composite index was up 15.89%, and the Dow Jones gained 7.17% YTD.
On Wednesday, the SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust ETF (NASDAQ:QQQ), which track the S&P 500 and Nasdaq-100, respectively, closed lower. SPY fell 0.72% to $767.81, while QQQ fell 0.84% to $741.21. Meanwhile, the Dow tracker, State Street SPDR Dow Jones Industrial Average ETF Trust (NYSE:DIA), ended 0.71% lower at $514.30.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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