With the midterm election over and Republicans celebrating a solid outing, US indices are poised to make gains, according to MarketWatch. History shows that markets tend to fare well following midterm elections, regardless of the outcome.
Wednesday, November 5, 2014
Wall Street opened higher Wednesday morning. The S&P 500 and Dow both gained 0.5%, while the Nasdaq added 0.4%.
MarketWatch found that stocks are already at their strongest in the period from October 31 to April 30 – the S&P 500 averages a 7.1% gain during that phase. But in the 21 midterm election years since 1930, stocks were found to have returned 16.3%.
Indices favor Democratic president with Republican Congress
The result of Tuesday’s election should be especially good news for US indices. The partnership of a Democratic president with a Republican Congress produced the best results from the S&P 500 since 1945 and the second best since 1901.
With that said, there are always exceptions to the rule. Investors that analyze stocks’ movement following a midterm election through the end of the year will find several instances in which indices lost ground. But extending that range until the following April reveals a stronger performance.
Politics to affect markets
Although the markets should enjoy advances in the aftermath of the elections, whether or not they can maintain that run is a different question altogether, reported The Wall Street Journal. President Obama and the Congress must prove they can cooperate to pass legislation that will benefit businesses, the energy sector and the public at large.
“In the end, because I don’t necessarily see [the change in Congress] as a huge move – I think the markets will turn back to the real fundamentals, which is the earnings of companies,” Bill Stone, chief investment strategist at PNC Wealth Management, told The Wall Street Journal. “We still have a divided government.”
A setback for second-term presidents at the midterm is not uncommon, but it does not mean President Obama will be incapable of reform. Reagan, Clinton and Bush junior all passed meaningful legislation without control of Congress in their final two years in office, the news source pointed out. For indices to maintain long-term gains, President Obama and the new Congress may have to work together.
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