Sean D. Emory
THOSE MID TERM ELECTIONS
Hello, good morning. It is Chart of The Week time and this go around I am sharing a table and a chart.
There's a lot of discussion around market conditions and how the mid-term elections may create a wrench in the direction of markets. The consensus seems to think markets will suffer.
While the future is never certain, we like to turn to history for guidance. We went ahead and reviewed how markets have performed during previous mid-term election cycles.
Below is a table highlighting the S&P 500 returns 1,3,6,12 months after the mid-term election. We sourced data all the way back to 1946 and incorporated the president at the time and the eventual makeup of the house and senate.
The takeaway was pretty clear. Markets performed great during each mid-term election period.
1 Month After: Markets were positive 72% of the time 1 month following, with a median gain of 2.06% and max loss of -12% (1974). Keep in mind during the 1974 period we saw the collapse of the Bretton Woods system, and the global economy lacked any form of stability.
3 Months After: Markets were positive 94% of the time 3 months following, with a median gain of 8.16% and max loss of -7.8% (2002). During the period of 2002, we were at the tail-end of the Nasdaq bubble. October 9th was the crash low.
6 Months After: Markets were positive 100% of the time 6 months following, with a median gain of 15.96%.
12 Months After: Markets were positive 100% of the time 12 months following, with a median gain of 13.80%.
Therefore, while mid-term elections can drive emotions and headlines, historically they have proven to be just that...
S&P 500 Today
As an #IBDpartner this chart shows that the mid-term election is coming at an important time for markets. Here's a MarketSmith chart showing the S&P 500 from March of 2017 to today. It is clear that the market has now entered and well defined sideways range. The false breakout in markets came at the January highs, which is 5% higher. The support region seen in February of 2018 is about 7% lower from these levels. With that in mind the risk reward is skewed lowed for anyone entering markets in a broad way. For markets to break out of this range, we will need to see the historical mid-term election data hold.
Side note: If you like these charts, then go to MarketSmith. You can try it here.
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