Will history repeat with another advance?
In the aftermath of U.S. mid-term elections, it is worth noting the performance of stocks during similar periods in history. Since 1940, there have been 18 mid-term elections. In every instance, stocks, as measured by the S&P 500 Index, have delivered a positive return for the six-month period following the election [November 1 – April 30].
The gains have often been significant. On average, stocks have returned 17.91% during the half-year following a mid-term vote. The biggest advances were 26.88% in 1970-1971, and 26.57% in 1942-1943. The lowest return for the six-month period was 0.75% in 1946-1947.
Election-related uncertainty is gone
Why has the market consistently advanced following every mid-term election? Economic conditions, of course, have varied across these periods. What they might have in common, many market observers believe, is that political questions are resolved. In other words, each instance might be considered a “relief rally,” as election-related uncertainty disappears.