The Dow Jones Industrial Average and other indices suffered defeat in 2022. Major stocks such as apple (AAPL), Microsoft (MSFT) And the Tesla (TSLA) They all suffered massive withdrawals. Because of this, many investors are certainly concerned about the impact of the midterm elections.
But studies show that while market volatility has skyrocketed before elections, the period after the vote often rewards investors with rich returns.
David Ryan, a three-time winner of the American Investment Championship, told Investors Business Daily that there are plenty of reasons to be optimistic.
“We’re on a midterm dip this year, but this is something that could help the market,” Ryan said. “Records can always be broken, but these are some things you should be aware of and look out for in the future.”
For now, it seems likely that the Republicans will at least take control of the House. But a red wave as it seizes both the House and Senate is also possible amid President Joe Biden’s low approval ratings.
According to Ryan, from 1977 to 2019, the stock market’s best performance came during times when control of Congress was divided between Republicans and Democrats.
The second best performing period was when Republicans controlled the Senate and Democrats controlled the House, according to Ryan’s data.
Democratic sweep carries risks for Dow Jones stock
Inertia is a good thing for markets, said Philip Orlando, chief equity market strategist at Federated Hermes.
“While the sharpest 25% correction in the S&P so far this year reflects investor frustration with the state of the economy, stock prices typically rise during the last quarter of midterm years if voters present a divided government,” he said in a research note.
The big risk is if the Democrats somehow pull a rabbit out of the hat and manage to maintain overall control.
“If Democrats can keep both houses of Congress mid-term, and there is no change in the current direction of our fiscal policy, there may be no change in the direction of stock prices either,” he added.
‘Good opportunity’ for stocks after mid-term
Sam Stovall, chief investment strategist at CFRA, found that from a long-term perspective, a united government or a divided Congress produced the best results for investors.
His data found that from 1944 through 2022, united government — with one party controlling Congress and the White House — led the stock market to advance 75% of the time.
The worst outcome came when a Democratic president was in power with an all-Republican Congress. Stocks here have gained 60% of the time.
While this is the most likely scenario, Stovall believes stocks have a good chance of recoupting some of their losses after the midterm.
“While I believe increased recession risks will pressure stocks in the longer term, seasonal optimism may support or boost stocks later this year and into 2023,” he told the International Investment Bank.
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