More often than not, a midterm election gives a boost to the markets. But 2022 hasn’t been like most years.
Predicting the future is an imperfect art. Any prudent market-watcher can tell you the best we have are informed guesses based on rules of thumb … but one of those guidelines that’s been pretty solid until now might be called the midterm lift.
The Midterm Lift “Rule”
In America, a midterm election year usually gives a boost to the markets as a kind of post-election present. Since 1946, 17 of the 19 midterms saw the market perform better in the six months following an election than it did in the six months leading up to it. If you want to narrow that to the years since 1950, then every single market has risen, and risen well. Looking at the two-year period after every midterm election since 1950, the market has delivered a rate of return of 33.7% on average. For most investors, that seems like quite a handsome profit.
So are 2022’s midterms going to put our storm-tossed portfolios back on the road to steady, certain returns? Possibly. But there are a couple of caveats.
For one thing, this hasn’t been an ordinary year, if you haven’t noticed. We’ve faced systemic supply-chain issues uncovered by the pandemic, the Russian invasion of Ukraine sent petroleum prices skyrocketing, and the Fed is trying to bob and weave between a one-two punch of high unemployment and rising inflation. In response, markets have been, in a word, volatile.
For another thing, a major factor in the typical uptick after the midterms is that Congress will usually put together generous government-spending packages. The market, in turn, usually responds positively. This year, in the wake of stimulus spending in response to the ongoing pandemic (not to mention an unusual level of political polarization), that kind of legislative largesse might not be in the cards. The market might have to go it alone.
Photo Source: https://www.schwab.com/learn/story/will-midterms-affect-market-performance
Which Way Do You Go?
A well-diversified portfolio can keep a nest-egg positioned steadily in good times and bad, as the markets expand and contract. If you’d like to see if you’re well-positioned to take advantage of a possible midterm lift — and if you want to know if you’re well-prepared in case that lift doesn’t come — consult one of our financial advisors for guidance.
The views stated in this piece are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities. Due to volatility within the markets, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. A diversified portfolio does not assure a profit or protect against loss in a declining market. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing. The S&P 500 is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.