Will the Midterm Elections Trigger a Stock-Market Rally?
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Here's your Money Briefing for Tuesday, October 11th. I'm J.R. Whalen for The Wall Street Journal. Midterm elections often trigger changes in the balance of power in Washington, but they also have a history of jump-starting stocks.
The S&P 500 has moved higher in the one-year period following every midterm election since 1942. So that's a spotless eight-decade record of rising after the midterms.
So can you expect your stocks in 401k to go higher after November 8th selections? Our markets reporter Hannah Miao joins us to talk about it after the break.
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It's been a rough year for stocks, with the Dow and S&P 500 falling into a bear market. But even in past market downturns, midterm elections have marked a rallying point for the markets. So how likely are stocks to buck the downward trend? Could inflation and higher interest rates keep Wall Street bulls on the sidelines? Wall Street Journal markets reporter Hannah Miao has been looking into it, and she joins us to discuss. Hannah, thank you very much for being with us.
Absolutely. I'm happy to be here.
So Hannah, in recent election cycles, stocks have risen in the year following midterm elections. How far back does that trend go?
How have U.S. stocks historically performed in the year after midterm elections?
The trend actually goes all the way back to World War II. The S&P 500 has moved higher in the one-year period following every midterm election since 1942. And on average, the index has gained nearly 15% in the one-year post-midterm period. So that's a spotless eight-decade record of rising after the midterms.
Wow. So what's the outlook for stocks in the year following next month's midterm elections?
The outlook isn't as clear this year. Investors say they're not necessarily betting on a post-midterm rally. They're juggling a whole host of market moving factors. First and foremost, they're concerned about the Federal Reserve's aggressive interest rate raising campaign in order to bring down inflation. And with that, they're worried about an economic slowdown. And they expect corporate earnings to weaken amid the tougher business environment, too.
Okay, but this isn't the first midterm election cycle where Wall Street has been worried about economic growth, right? So why is this time different?
So the Fed hasn't raised interest rates at this rapid of a pace since the 1980s. And the Fed is signaling further interest rate increases into next year. There's also a lot of concern about a potential recession. And we've actually never had a recession begin in the third year of a presidential cycle, which is the year after the midterms. That's according to Strategas. Usually the reason why stocks tend to rally after midterms is because there's a removal of uncertainty about who's in power in Washington. investors have a better sense of what kind of policymaking will go on in the coming year. But this year, they're saying that even once they understand who will be in power in Washington, that's not going to remove a lot of uncertainty about monetary policy, which is controlled by the Fed.
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