Why the midterm elections are likely to become a strong tailwind for the stock market

Why the midterm elections are likely to become a strong tailwind for the stock market Why the midterm elections are likely to become a strong tailwind for the stock market The six months subsequent to midterm elections have seen strong gains, historically Resolving uncertainty in Washington has often resulted in gains for Wall Street. /iStock One of the seasonally most favorable periods for the stock market is about to begin. I’m referring to the period that lasts from November to April. It corresponds to the six months after midterm elections, during which the stock market historically has produced well-above-average returns. average November-through-April return since the index was created in 1957, as a function of the year of the presidential term.

As you can see, the stock market does far better in the six-month period following the midterms than in the comparable periods of the other three years of the presidential cycle. Even better, in no comparable six-month period since 1957 did the S&P 500 actually lose money. Video 91/1 Skip Ad Continue watching after the adVisit Advertiser websiteGO TO PAGE David Booth on Why You Shouldn't Panic Sell Play video: David Booth on Why You Shouldn't Panic Sell Furthermore, as I’ve pointed out before, these odds weren’t any lower in those midterm years in which the market was unusually strong over the six months prior to the midterms.

That’s good news, since the S&P 500 since this past April 30 has been an above-average performer. Don’t Short Yourself offers weekly money tips to help you earn it, stack it and grow it. I agree to the Terms of Use, Privacy Notice and Cookie Notice.

I would like to receive updates and special offers from Dow Jones and affiliates. I can unsubscribe at any time. Why has the market in the past performed so well in the six months following midterm elections?

The answer, according to a recent study, appears to be resolution of the uncertainty that exists prior to those elections: Just as the market tends to perform poorly when uncertainty increases, it tends to perform well when that uncertainty lessens. The study, “Asset prices, midterm elections, and political uncertainty,” was conducted by Terry Marsh, an emeritus finance professor at the University of California, Berkeley, and Kam Fong Chan, a professor of finance at the University of Western Australia. They found that the Economic Policy Uncertainty index in the U.S. tends to be especially high in the months prior to the midterms and especially low in the months immediately after.

Needless to say, however, there are no guarantees. Seasonal factors have been headwinds to the market since this past May Day, and yet the stock market has nevertheless performed quite well. Yet there’s no denying the enormous uncertainty that exists currently over Washington’s direction after the midterms — uncertainty that almost certainly is holding the stock market back.