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CNBC reported that the S&P 500 has performed strongly in most years following the US midterm elections, but factors such as AI, monetary policy, the bond market and geopolitics still really influence the market’s outlook.
Americamidterm elections It is visible today,wall Street The market is full of tension and a wait and see environment. However, historical experience shows that no matter who wins big or is tied in the final outcome, the election is often a harbinger of a strong rally in US stocks after the election.
Financial news network CNBC reported that regardless of the midterm elections or the presidential election,stamp 500 The index (S&P 500) usually performs well after elections. CNBC analyzed the returns of the S&P 500 index after all elections from 1980 to 2024. Regardless of whether it was a presidential election or a midterm election, the index rose an average of 0.2% the day and a week after the election; The average increase one month after the election was 1.1%.
One year after the election, the S&P 500 index rose an average of 13.7% after a midterm election and an average of 13.8% after a presidential election. The probability of increase after the election was 91%. Additionally, for 11 midterm elections from 1982 to 2022, the S&P 500 ended in the red the year after the election.
However, short-term returns show large fluctuations in performance, especially during presidential elections, with small declines often occurring the day after and a week after the election.
In a column on CNBC, Ryan Detrick, chief market strategist at Carson Group, told CNBC: “There will be some anxiety in the market before the election, but after the election is over, that uncertainty will subside significantly, and the market will generally perform well.”
It is worth noting that Wall Street prefers a divided government (that is, one party controls the White House and the other party controls at least one of the House of Representatives and the Senate).
Data show that in 10 midterm elections and 5 presidential elections in which no single party was outright in power, the average increase in the S&P 500 one year after the election was up to 15%, and in 14 out of 15 cases there were positive returns; On the other hand, if a single party was completely in power, the average growth over the same period was only 11.5%. “The market would not be happy if there was a massive red or blue wave, because it means a single faction has too much power and spending could get out of control,” Deitrick said.
The market currently expects that a “Republican president paired with a Democratic Congress” could emerge after this midterm election. Historical data shows that this is beneficial for the market.
A CNBC analysis found that in the three midterm elections of 1986, 1990, and 2006, the Democratic Party controlled both houses of Congress and Republican presidents were in power. After these three elections, the S&P 500 index fell an average of 0.5% on the day the results were announced, but rose an average of 3.4% a month later, and rose an average of 10.9% a year later.
Although historical data is favorable to the market, the main key to determining the fate of US stocks is still the current overall economic and profit cycle, not the election.
A year after the 2000 election, fueled by the bursting of the dot-com bubble, the S&P 500 index fell 22.1%, the worst post-election annual performance recorded since the 1980s. In contrast, in 2020, a year after the election, when markets made a strong comeback from the selloff caused by the COVID-19 pandemic, the S&P 500 index rose 38.3% in the year following the election. It became the best performing year after the election.
Societe Generale reminded that the Federal Reserve’s monetary policy and the direction of the corporate profit cycle have a far greater influence than political elections.
