After each of the last 40 midterm elections, the Standard & Poor’s 500 has gained an average of 15 percent in the following 12 months on a sense of clarity about short-term tax, fiscal, and economic policy, The Wall Street Journal reported.
That sense of clarity has buoyed markets no matter which party controlled Congress, the WSJ noted.
This year’s election could break that streak, analysts say.
Markets are clouded by inflation, rising interest rates, a global economic slowdown, Russia’s war in Ukraine and resulting Western sanctions, food shortages, and emerging markets’ increasingly unsustainable debt burden.
The S&P has lost 25 percent of its value so far this year and is at or near its lowest levels of the past nine months.
The index closed at 3,612 on 10 October, down another 0.7 percent.
The dollar’s strength also presents a problem: it makes U.S. exports more expensive, reducing sales for the international firms that make up a large portion of the S&P index.
Tech stocks usually have led post-election rallies, but tech stocks recently have been beaten up by rising interest rates, which often crimp their future cash flows.
“We don’t necessarily have an accommodative monetary policy environment,” Strategas analyst Courtney Rosenberger told the WSJ.
Bond prices have sunk along with stock values.
On 5 October, the 10-year treasury’s yield surpassed 4 percent for the first time, closing the session with the biggest single-day plunge since 2009. Bond yields rise as bond prices fall.
In the past three weeks, investor optimism slumped to its lowest and most bearish level since 2009, a survey by the American Association of Individual Investors found.
Contrarians, always a minority by definition, see the dark mood as an indicator that investors are ready to plunge back into equities and shop for bargains.
TREND FORECAST: We disagree with the “analysts.” As we have forecast in this Trends Journal, with pressure from the White House, the Fed will raise interest rates only .25 basis points following their 2 November meeting. This will sharply boost equity markets in time for the 8 November 2022 midterm elections.
As equity markets soar for a few days, the general public will believe it is a sign that the economy is rebounding and their financial future will be much brighter, thus, they will cast their votes for the political party in power.