Here’s how the midterm elections affect the stock market

Here's how the midterm elections affect the stock market

in the coming days Voters across the country The party that controls the legislative branch of government and many state governor seats will decide.

Regardless of who retains or gains power from the midterm elections, the outcome will affect investors and the stock market for weeks to come. Moreover, the rising cost of living and persistent inflation may accelerate depending on the volatility of the stock market reaction.

In November. 8, midterm elections 35 seats in the Senate, 435 seats in the House of Representatives, and 36 seats for governors versus electors.

The interest rate hike is also putting Americans on edge as fears of a recession continue to grow. However, from a historical perspective, markets have always become volatile, for better or worse, after elections, but the current weakness of the US economy may produce some long-term effects.

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American flags flutter outside the New York Stock Exchange. 23, 2022, in New York. (AP Photo/Mary Altaffer/AP Newsroom)

In recent weeks, the world’s most powerful CEOs have expressed concern about the current state of the economy and that persistently high interest rates will push the country into recession. Among the most prominent of these businessmen who issued this warning is Jeff Bezos from Amazon, Tesla CEO Elon MuskGoldman Sachs CEO David Solomon, and JPMorgan CEO Jamie Dimon.

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“These are very serious things, I think, that are likely to push the United States and the world — I mean, Europe is already in recession — and potentially put the United States into some kind of recession for six to nine months,” Dimon said during an interview earlier this month. . Dimon also warned that the S&P 500 could fall as much as 20% in the next month.

In general, markets do not respond well to surprises or uncertainty. Stocks generally fluctuate before, during, and after Election Day. Although bounces usually occur, high volatility can make this more difficult.

By definition, the United States is already in a recession. The most widely used definition of a recession is two straight quarters of a decline in GDP. US GDP declined at an annualized rate of 0.9% in the second quarter, after a 1.6% decline in the first quarter of 2022. However, not since the midterm elections in 1929 did a recession begin during the president’s third year in office. To get a rough idea of ​​how the election results will affect the stock market, we must evaluate the past midterm elections.

How has the market been affected historically by half deals?

Historically, a current president The political party has lost its seats 13 times in the House of Representatives and nine times in the Senate over the past six decades in 15 midterm elections, according to CNC Financial Group. Historically, the market has mostly underperformed in the year before the midterm, which would be consistent with the current economic situation in the United States. Moreover, stocks have also outperformed the 12 months after the midterm with the S&P 500 average of 16.3 %, according to Bloomberg.

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In the latter half of 2018, the stock market rebounded quickly after Democrats regained the House of Representatives while Republicans maintained their majority in the Senate. The Dow Jones Industrial Average rose more than 250 points the day after the election, which totaled a 1% increase, while the S&P 500 and The Nasdaq also increased by more than 1%. Usually, whether the party gains or retains control of the government is the most important indicator of how well the market is doing.

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For example, election results from the years of Donald Trump and Joe Biden claimed the presidency followed by a total S&P 500 return of close to 24% in 2016 and 40% in 2020. Factors beyond the control of party affiliation will determine how the market will react.

Do stocks tend to go up or down after the midterm elections?

Since 1946, in nearly 90%, or 17 of the last 19 midterms, market performance has increased six months after the election compared to the months before. However, the same results may not be guaranteed for the upcoming elections, as the market’s performance in 2022 is much weaker than in previous years, according to Charles Schwab.

“Often post-election outperformance is driven by market expectations of increased government spending from the new Congress,” Liz Ann Saunders, senior investment analyst at Schwab said in a statement. But an additional injection of money appears unlikely this year, given the government’s historical levels of spending and stimulus in response to the pandemic.

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In fact, all of that money is a contributor to high inflation in 40 years, and any new spending is likely to exacerbate the problem.

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Historically, the political party of the incumbent president has lost seats in the House or Senate in a majority of the last 15 midterm elections. (AP Photo/Patrick Semansky, file/AP Newsroom)

“The combination of high inflation, the war in Ukraine, and the ongoing pandemic has really made this cycle unlike the previous half-years.” Saunders added. “With so many other forces in the market, I wouldn’t put much weight in the historical performance of the half year.”


Is the stock market closed on election day?

The New York Stock Exchange Open Monday through Friday 9:30 a.m. to 4 p.m. ET and closed on certain federal holidays. However, the stock market will remain open during normal hours, Election Day, November 11th. 8.

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