What questions would you ask with 35 years of financial experience? Andy Blackwell asks, “What was the average return for the years after a midterm election?
The results surprised me…
During a Wednesday morning call, in one of the most dismal year to date performances in my personal experience as an investment advisor, my dad asked me what’s the average performance of the stock market the year after a midterm election? Perhaps his intuition built by 35 years as an investment manager (or sheer luck) led him to ask, but I have to say, he’s on to something.
I started with the December close of the S&P 500 index during midterm election years and ended with the December close of the following year. I went back to 1982, the year before my dad joined my grandpa as a stockbroker in 1983. I was a bit surprised and thought, “Well a lot of money printing and monetary mischief has occurred between now and then. So, I went back to 1958, the year before my grandpa started Blackwell Corporation. Still a pattern persisted. So, I thought, "Where should I stop?" Thinking through US economic history led me back 78 years to 1944 when the US became the official reserve currency of the world. However, 1944 is not a midterm election year, so I had to choose 1946 or 1942. Since 20 election cycles looks nicer and makes math easier, I chose 1942.
I found…
Over the past 80 years, 15 out of 20 midterm elections were followed by double digit returns in the S&P 500 index for the following year.
None of the following years after a midterm election closed the year with negative performance.
The average performance for the year after a midterm election year, has been 17% since 1942.
I was shocked… considering markets are supposed to walk randomly down wall street.
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Past performance may not be indicative of future results.