Updated: May 3, 2013 12:14PM
Originally published November 7, 2006
While pundits debate the impact of the election, the market doesn’t seem to care about who wins or loses -- at least speaking historically.
If past patterns continue -- always a risky assumption -- today should be a good time to buy stocks.
According to Joseph Quinlan, chief market strategist of global wealth and investment management at Bank of America, history suggests that no matter which way today’s midterm elections go, it should be bullish for the stock market.
Quinlan says, “After analyzing all the data back to 1946, we found that following midterm U.S. elections, the S&P 500 posted average one-month, three-month and six-month total returns of 3.4 percent, 10.4 percent and 18 percent, respectively. That’s not bad, but one-year returns were even better: 23.1 percent.”
Quinlan is quick to point out that he’s not expecting a repeat of those double-digit, post-election returns, but he does expect the market to “grind higher” in coming months.
Jim Stack, market historian and author of the InvesTech Research newsletter (www.investech.com), says post-midterm election periods are typically bullish for investors. He’s researched market performance during the four-year election cycle, going back to the early 1950s. He divided the cycle into two periods: from the day of the presidential election to midyear (July 1 or the next trading day) of the mid-term election year, and from the middle of the midterm election year to the next presidential election.
The results are startling.
Stack says the individual who invested $10,000 in the S&P 500 at the middle of the year of a non-presidential election, held for two years, and then sold at the presidential election, saw his account jump to $272,987 by following that strategy over the last 56 years. But the investor who bought the day after the presidential election and sold at mid-term, over those same election cycles, would end up with a portfolio worth only $9,345.History may also prove a guide for trading decisions during the week surrounding the election.
The Stock Trader’s Almanac (www.stocktradersalmanac.com) 2006 edition (Wiley, $34.95) highlights a bullish trend to the stock market in the five days before and three days after midterm elections. Since 1934, that eight-day trading period has produced an average gain of 2.9 percent, roughly equivalent to 40-plus Dow points per day at current levels.
The almanac points out there was only one losing midterm period, 1994, when the Republicans gained control over the House and Senate. And, according to the almanac, there were nine occasions when the president’s party had a double-digit loss in House seats. The average market gain during the eight-day trading period was 2.3 percent during those years.
Of course, if history were a perfect predictor of the future, there would be no risk in investing. And without risk, there would be no reward! So if you’re looking to history to guide you, remember that hindsight is always 20/20 -- especially in the stock market.
Terry Savage is a registered investment adviser. Her personal finance column appears Monday in the Chicago Sun-Times.