Will the Midterm Elections Affect the Stock Market Negatively?

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The stock market has been in freefall, and people's portfolios are taking a beating. With the midterm election right around the corner, things are looking pretty volatile. The Democrats might lose their majority in Congress, which would have implications for people's battered portfolios.

All 435 House seats and 35/100 of the Senate seats are up for grabs this election season. 36/50 states will also be electing governors this year.

Since 1942, the median equity market returns in the first three-quarters of midterm election years have been -1%, 2%, and 5%. 4th quarter returns generally jump to 8%.

Several banks and financial service companies have weighed in with their opinions about the midterms and what effect they will have on the already fragile market this year.

“But irrespective of the result, there’s a consistent market signal in all 19 midterm elections since WWII: The S&P 500 has ALWAYS been higher exactly a year after the vote.” — Deutsche Bank

“Our analysis shows that the health of the economy is a much more important factor than midterm election results.” — U.S. Bank

“The higher cost of living and an aggressive rate tightening cycle complicates the voting picture. A lot will depend on voter turnout on the day.” — Jefferies

“There are myriad unknowns heading into this period, not the least of which is how the midterms will impact the legislating calculus, but we expect movement on the annual defense bill, a federal funding package that could become a Christmas tree carrying numerous ornaments, and possibly a targeted tax bill.” — BTIG

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