Midterm Elections could Bode Well for the U.S. Stock Market

As we are in the midst of the 2018 midterm election season, many investors are wondering what potential impact these elections might have on the stock market. Based upon our review of historical data related to stock market performance and mid-term elections, we are optimistic that the midterm elections could help provide some additional steam to this bull market, which has hit a volatile stretch during the month of October.

The first research study we reviewed in this regard was conducted by S&P Capital IQ.

The study (summarized in the chart above) concluded that the stock market – which was defined in this study by the S&P 500 index – has gained 15.3% on average in the six months following a mid-term election in the 3rd year of a given term of a presidency, which is the case this year with President Trump. The study also showed that the frequency of advance (“FoA”) for this occurrence was 94% of the overall time period of October 31, 1944 – September 29, 2014 for this research study. Midterm elections are currently scheduled for November 6, 2018, so this would roughly translate to the period of November 2018 – April 2019.

Another area to observe as it relates to stock market performance following midterm elections (or presidential elections for that matter), is which political party is in control of Congress after the election. To this end, according to an MFS Investment Management research report entitled, “Primaries, caucuses, and elections…oh my!”, based on data from Ned Davis Research from 1900 – 2008, it appears that the diversification across the White House, House of Representatives and Senate may bode well for stocks based on historical returns from 1961-2010, on average, for the stock market – which was defined in this study by the S&P 500 index as well.

Political Control >> Average Return for the S&P 500
• Democrat President / Republican Congress >> +21.3%
• Republican President / Democrat Congress >> +4.5%
• White House / Congress Controlled by Same Party >> +12.1%
• Either Party in White House / Split Congress >> +7.1%

Source: MFS Investment Management. The Standard & Poor’s 500 Index (S&P 500) measures the broad U.S. stock market. Indexes are unmanaged, statistical composites and it is not possible to invest directly in an index. The returns shown do not reflect payment of any sales charges or fees an investor would pay to purchase the securities they represent. The imposition of these fees and charges would cause performance to be lower than what is shown. Past performance is not a guarantee of future results.

Based on data from FiveThirtyEight, it is forecasted at this time that Republicans will likely keep control of the Senate while Democrats will likely take control of the House of Representatives according to these projections.
• 18% Chance that Democrats with Control the Senate after 2018 Midterm Elections
• 82% Chance that Republicans will Control the Senate after 2018 Midterm Elections
• 84% Chance that Democrats will Control the House of Representatives after 2018 Midterm Elections
• 16% Chance that Republicans will Control the House of Representatives after 2018 Midterm Elections
Source: FiveThirtyEight, October 26, 2018.

As a result, the “Either Party in White House/Split Congress” combination could be the result coming out of this midterm election cycle and could prove to be beneficial to upward stock market growth potential. Of course, it is important to note that these are just projections and the impact of the midterm elections on stock market results could be different this time around. In addition, past performance does not guarantee future results.


Disclosure: Hennion & Walsh Asset Management currently has allocations within its managed money program and Hennion & Walsh currently has allocations within certain SmartTrust® Unit Investment Trusts (UITs) consistent with several of the portfolio management ideas for consideration cited above.