There has been surprising consistency over the past 100 years or so with the stock market after elections. Stocks have typically followed a broad pattern that coincides with presidential terms.
Voters across the U.S. are headed to the polls over the coming days to decide who will control the legislative branch of government, as well as several gubernatorial seats. Thirty-five Senate seats, 435 House seats, and 36 gubernatorial seats are up this election.
But no matter who holds onto power from the midterms, there will be an effect on the stock market for weeks after.
The months before the midterm elections have been some of the worst in what is known as the four-year presidential election cycle. The rising cost of living and persistent inflation may accelerate depending on the volatility of the stock market’s reaction.
But the stock market is expected to enter a historic sweet spot. Stocks typically rally in the year after the midterms no matter who won. Whether that will remain true this year is being debated.
Market veterans take these patterns seriously but aren’t counting on them in an economy plagued by soaring inflation, rising interest rates, and fears of a recession.
Experts said that after studying the presidential cycle carefully, it is clear that there is something to it. But it’s possible that this year we will need to invoke the four most dangerous words in investors’ lexicon: ‘This time is different.’
There is overall pessimism in the U.S. markets right now. The markets are entering a stage where all signs are pointing at a recession to come if the U.S. is not already in one.
But the recession could already be priced into the markets, in which case the next bull run may be faster and come earlier than many investors expect.
The latest government figures show that the economy grew at a 2.6 percent annual rate in the third quarter. But the Federal Reserve says interest rates need to rise and stay high until the inflation numbers come down.
The Fed’s monetary tightening is aimed at slowing the U.S. economy. Whether the consequences for working people will be mild or savage isn’t clear.
A stack of concerns has weighed on the market, including Covid pandemic fears, the death toll from Russia’s war in Ukraine, rising interest rates globally, an energy crisis and high energy costs, and fracturing in the U.S. relations with China.