Here’s how the midterms affect the stock market

In the coming days, voters across the nation will decide which party controls the legislative branch of government and several gubernatorial seats.

Regardless of who holds or gains power from the midterm elections, the outcome will affect investors and the stock market for weeks to come. In addition, the increase in the cost of living and persistent inflation may accelerate depending on the volatility of the stock market reaction.

The Nov. 8, the mid-term elections it will put 35 Senate seats, 435 House seats and 36 government seats up for grabs.

Rising interest rates also put Americans on edge as fears of a recession continue to grow. However, from a historical perspective, markets have always become volatile, for better or worse, after an election, but the current vulnerability of America’s economy can produce long-term effects.

A SIMPLE GUIDE TO THE MIDTERM ELECTIONS, HOW THEY AFFECT THE PRESIDENCY AND MORE

In recent weeks, the world’s most powerful CEOs have expressed concern about the current state of the economy and that high interest rates continue to lead the country towards a recession. The most prominent of these entrepreneurs giving notice include Amazon’s Jeff Bezos, Elon Musk, CEO of TeslaGoldman Sachs CEO David Solomon, and JPMorgan CEO Jamie Dimon.

“These are very, very serious things that, I think, are likely to push the United States and the world — I mean, Europe is already in recession — and are likely to put the United States into some sort of recession for six to nine months. from now on,” Dimon said during an interview earlier this month. Dimon also warned that the S&P 500 could drop as much as 20% in the coming month.

In general, markets do not react well to surprises or uncertainty. Stocks generally fluctuate before, during and after election day. Although rebounds typically occur, too much volatility can make it much more difficult.

By definition, the United States is already in a recession. The most widely used definition of a recession is two straight quarters of falling gross domestic product. The GDP of the United States fell at an annualized rate of 0.9% in the second quarter, after a decrease of 1.6% in the first quarter of 2022. However, not since the midterm elections in in 1929, a recession began during the president’s third year in office. To get a rough idea of ​​how the election results affect the stock market, we have to evaluate the past mid-term election.

How has the market been historically affected by midterms?

Historically, the incumbent president The political party has lost seats 13 times in the House and nine times in the Senate in the last six decades in 15 midterm elections, according to the CNC Financial Group. Historically, the market has mostly underperformed in the year before the midterm, which would be consistent with the current economic situation in the United States. .

In the most recent 2018 midterms, the stock market rallied quickly after Democrats took over the House while Republicans held the majority in the Senate. The Dow Jones Industrial Average rose more than 250 points the day after the election, which was up 1%, while the S&P 500 and Nasdaq also rose by more than 1%. Typically, whether a party gains or maintains control of the government is the most significant indicator of how the market is doing.

The CEO of the FEDERAL RESERVE BANK OF MINNEAPOLIS says inflation is “very concerning” and “is spreading” through the economy.

For example, the election results of the years that Donald Trump and Joe Biden claimed the presidency were followed by a total S&P 500 return of almost 24% in 2016 and 40% in 2020. Factors beyond the control of the affiliation of the party will determine how the market will be. react

Do stocks tend to go up or down after the midterm elections?

Since 1946, in almost 90%, or 17 of the last 19 midterms, the performance of the market has increased six months after the election compared to the months they had before. However, the same results may not be guaranteed for the next election as the performance of the 2022 market is significantly poorer than previous years, according to Charles Schwab.

“Post-election performance is often driven by market expectations of increased government spending by a new Congress,” Schwab chief investment strategist Liz Ann Sonders said in a statement. “But an additional infusion of funds seems unlikely this year, given historic levels of government spending and stimulus in response to the pandemic.”

In fact, all that money is a contributor to 40-year high inflation, and any new spending could make the problem worse.

“The combination of high inflation, the war in Ukraine and a persistent pandemic has already made this cycle different from previous mid-term years.” Sonders added. “With so many other forces at play in the market, I don’t put a lot of weight on the mid-year historical performance.”

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Is the stock market closed on election day?

U New York Stock Exchange is open Monday through Friday from 9:30 am to 4 pm Eastern Time and closed on certain federal holidays. However, the stock exchange will remain open during regular election day hours on November 8.