Historical Performance of the S&P 500

Since 1982, the S&P 500 has shown resilience, registering gains in the year following each U.S. midterm election. With elections happening today, this historical precedent provides a favorable outlook for stock performance amidst current macroeconomic challenges.

Data from CNBC indicates that following the last 11 midterm elections, the S&P 500 has averaged a commendable 13.7% increase over the subsequent year. Remarkably, this trend holds true across all instances.

Further enhancing this data, Arun Sundaram, a senior investment strategist at CFRA, notes that markets historically have not experienced declines within the 12 months following midterm elections since World War II, with average gains reaching approximately 16%.

“I think that the midterms are a bit of a clearing event. U.S. markets tend to do better once we get past the midterms,” Sundaram stated to CNBC.

The performance of the S&P 500 tends to be even more pronounced when control of Washington is divided between political parties. Historically, this scenario has led to an average gain of 15%, compared to 11.5% when one party maintains control.

Looking ahead, analysts at CFRA predict a likely Democratic majority in both the House and Senate, with notable historical precedents suggesting that in previous cases of a Democratic Congress under a Republican president, the S&P 500 has averaged a 10.9% one-year gain.

However, Sundaram notes a critical point: markets are generally more robust under Republican leadership. If the Democrats secure both the House and the Senate, he considers it a less favorable outcome, though still predicts positive market growth over the next 12 months.

Market Trends and Geopolitical Considerations

In the near term, November typically signals positive momentum for stocks. Data from The Kobeissi Letter reveals that, on average, November has brought a 2.1% gain since 1980, with stocks rising 74% of the time during this month.

When considering midterm years, November’s average jump is even higher at 2.7% with a success rate of 78.9%.

Still, geopolitical developments, particularly ongoing tensions and conflicts, remain critical unknowns. Sudden changes, like the recent escalation in the Israel-Hamas conflict, could significantly impact market sentiment and behavior. Additionally, CFRA has revised its oil price forecasts, expecting an average of $85 per barrel next year, up from an earlier estimate of $70.

The yield on 10-year Treasury bonds fell below 4.9% recently, a decline from heights of 5.3% just a few weeks prior. Market analysts have pointed to artificial intelligence as a significant influencing factor for future market movements, particularly within the technology sector.

Bitcoin’s Performance Post-Midterms

Bitcoin (BTC), reminiscent of the stock market’s patterns, has also shown a tendency to increase in value following midterm elections. However, its price movements are characterized by considerably larger volatility.

According to data from DWF Labs, Bitcoin experienced notable jumps following the 2014, 2018, and 2022 midterms, with increases of 25%, 45%, and 92% respectively.