As we enter the month of August, we now enter the "dog days of summer". More importantly, we are heading toward election season for congressional midterms. No doubt, you have been bombarded with election ads, opinions, and articles. I want to begin this commentary by stating that we are apolitical when it comes to investing. Whichever party is in power, our goal is to focus on keeping your financial plan on track.
Performance During Midterm Years:
During the midterms, we tend to see a rise in volatility as well as a more subdued market rates of return. Part of this can be associated with the idea that a divided congress can lead to grid lock which can cause a lack of action. Another reason, is the simple fact that the market doesn't like uncertainly. From the chart above, we will find that on average as we approach the election date in November, markets begin to rally off of more accurate political forecasts.
As we analyze the results from previous midterms(chart listed above), we will notice that there is a trend of above average market returns following one year after a midterm election. But, does it matter who controls congress? Between 1934 and 2018, the sitting president has only gained seats in congress 3 times during midterms. Please see the chart below for further clarification on performance.
Put simply, the market continues to make money under different political party. It is important that we separate our political biases from our investment plans. As always, try to remember, when you say "this time it's different", it's usually not.
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Miller, M., & Buchbinder, C. (n.d.). (rep.). Capital Ideas Investment Insights from Capital Group.