The midterm elections are fast approaching, and the world will be watching as voters head to the polls on Nov. 3 to elect their state representatives in the U.S. House of Representatives and the U.S. Senate.
With politics as partisan as ever and so much going on in the world, including the Iran war, investors will be watching the outcome of the midterm elections to determine what policy could look like over the next two years.
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While nobody knows what will happen, my prediction is that stocks will soar in the months following the midterm elections.
The market historically performs well following midterm elections
I have plenty of reservations about the stock market right now, particularly given everything going on with artificial intelligence, the fact that the market is about to complete its fourth year of a bull market, and the market has been running at elevated levels for some time.
However, the market has historically performed well following midterm elections, which makes sense to some extent.
There is a lot of uncertainty in the lead-up to elections because a shake-up in Congress could drastically change policy and affect numerous sectors, if not the market as a whole.
Once the midterms are finished, whether the market likes the results or not, investors will at least have greater certainty as they plan for the next two years of policy.
According to research from JPMorgan Chase, dating back to 1950, the broader benchmark S&P 500 (SNPINDEX: ^GSPC) Index has been positive over the 12 months following every midterm election, with an average gain of roughly 15%.
“In short, history is on the side of investors after midterms, and an environment of solid earnings, steady growth, strong investment and a less aggressive Fed than feared gives us confidence this cycle can follow the pattern,” JPMorgan Global Market Strategist Jordan Jackson wrote in a research note on Oct. 7. “Rather than trying to trade around the election, investors should stay invested, remain diversified and keep their focus on the longer-term drivers of returns.”
History doesn’t always repeat, but here’s why I think it will for at least a little while
Investors should understand that history rarely repeats itself. Just look back at more recent midterm elections. Since the turn of the century, while the S&P 500 has always been positive in the year following midterm elections, it has rarely hit the roughly 15% average gain.
