History Tells us to Buckle Up for a Market Rally

Nov 4, 2022

Markets are always volatile ahead of mid-term elections.

  • In 1990, the VIX jumped from 16 to 36
  • In 1994, the VIX jumped from 11 to 18
  • In 1998, the VIX jumped from 16 to 45
  • In 2006 and 2010, the VIX actually fell
  • In 2014, the VIX jumped from 12 to 40
  • In 2018, the VIX jumped from 12 to 37

So far, ahead of the 2022 midterms, the VIX jumped from an August low of about 20 to 35.  Granted, that was made worse with inflation, fears of recession, and the Federal Reserve, which thought inflation was transitory.  But there’s hope some of the fear could cool off once there’s certainty over the direction of the government following the elections.

Better, history tells us the markets should rally after midterm elections.

For one, midterm results could reshape President Biden’s ability to pass policies in the second half of his term.  While we’re not going to offer our political opinion here (it has no place), it wouldn’t be unusual if the Democrats lost the House – based on history.

In fact, as noted by Forex.com: “Democrats lost the House in 2010 midway through Barack Obama’s presidency, and Republicans lost the House after two years of Donald Trump’s. If Republicans take congress in the upcoming midterms, Biden will likely lose any chance of passing policies, but US stocks might actually gain ground. According to historical data, from 1901 onwards, a Democratic president combined with Republican control of both houses of Congress has produced annualized real stock returns of 8% for the Dow Jones.”

Two, stocks typically rally in the year following midterm elections since 1950, says The New York Times.  “The market has generally flagged in the months before the midterms and prospered after them. And it has often excelled in the year after the midterms, typically the best of the four-year presidential cycle.”

However, just because there’s a history, there are no certainties.

Right now, there’s hope the end of midterms will again lead to higher market highs.

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