Market Beat: The midterm elections and stock market impact |

Market Beat: The midterm elections and stock market impact

Ken Roberts

I am really glad that the midterm elections are over. I am not going to miss seeing the political attack ads on TV at all. It would be nice if these guys could just explain what they stand for and let the people decide instead of attacking each other like kindergartners, but I guess that’s just wishful thinking.

Anyway, now that they’re over, let’s take a look at how election results can impact the market. Historically, stocks have performed very well after midterm elections. According to BTIG, in the last fifty years, the S&P 500 has had an average increase of over 16 percent in the six months following midterms.

Stocks have also typically performed well in the third year of a presidential term. Since 1950, the market has averaged a return of about 18 percent, in the third year of a president’s term. The market also has a history of performing well during periods of gridlock.

One word of caution — when analyzing the market, there are many variables to consider. Just because things have behaved a certain way in the past doesn’t mean it will be that way in the future. Also, when using statistical analysis, 50 or 60 years of history is not a sufficient amount of data points.

However, there is definitely a relationship between politics and the economy, and regulations can affect the market and certain stocks and sectors within the market.

So, what should we be looking for now that the Republicans have control of Congress? One sector to keep your eye on is the energy sector where regulations could affect coal and natural gas stocks. The Keystone XL pipeline project could be back on the table.

The health care sector could also come into play as parts of the ACA could be addressed. A repeal of the medical device tax could benefit the medical device companies. In the financial sector, look for changes in the Dodd-Frank law that could benefit banks both large and small.

Industrial and defense stocks could also fare pretty well if we see a pickup in defense spending due to threats from ISIS and other geopolitical factors.

The good news is that it is now safe to turn the on TV, watch a great game and not get bombarded by the political attack ads.

Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.

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