From the desk of Willie Delwiche.
During our “Trendlines over Headlines” conversation last week, Patrick Dunuwila and I spent some time discussing seasonal patterns in the stock market. Among the inputs to our cycle composite is the 4-year Presidential Election cycle. The tendency for stocks to make a pre-midterm election low and then see sustained strength in the year between midterms and the Presidential election is well-advertised. The stats around this are pretty amazing. On average, stocks bottomed two months prior to the midterm election and, despite a few close calls, the S&P 500 has been higher one year after every mid-term election since 1950, on average nearly 15% higher.
This is often ascribed to the market’s preference for certainty. When the balance of political power is unknown, stocks weaken. When the outcome of the election becomes more obvious, stocks rally. This is regardless of which party that outcome favors. It’s a plausible story as far as it goes.