November 04, 2022

Investors are notoriously worried about the future of their savings when it comes to mid-term elections. Given the volatility we’ve witnessed in both equity and bond markets in 2022, apprehension about what lies ahead is understandable. This specific worry often leads to the question we have been fielding the most frequently in the last few weeks: “Will the results of the mid-term election negatively impact my portfolio?”.

 

As you might expect, the answer is not a straightforward one. Market activity leading up to midterms has historically been more volatile and produced lower returns when compared to cycles in non-election years. This is in large part due to future uncertainty, which is a space that markets are not comfortable operating in. As Meera Pandit, Global Market Strategist for JP Morgan describes, “Since 1942, median equity market returns in the first three quarters of midterm election years were -1%, 2% and 5%, respectively, but fourth-quarter returns jumped to 8%”. (Pandit, 2022) Even with irregularity in the quarters leading up to elections, markets have been known to generate positive returns post-election, regardless of which party is in office. 1

 

PJIM, a global investment company with over 1 trillion in assets under management, highlights this in their recent “Spotlight in the Markets” chart. The chart illustrates an average 15.1% S&P return in the year following each mid-term since 1950. The average return in non-election years during that same period was 7.1%.2

 

In the past, this post-election normalization to a stronger return has often been driven by the market’s expectation of increased government spending. However, congressional approval of increased expenditures seems unlikely in the year ahead, considering pandemic stimulus and spending of the last two years. Also, budget increases may further weigh on inflation headwinds, making an already complex economic environment even more challenging. 3

 

While investors may see volatility leading up to and after the        November 8th elections, it is important to remember that these    movements are usually short-lived and not tied to long-term        economic conditions.

 

Investment decisions should be made judiciously, relative to a  plan that is based on investment goals and risk appetite.

  
The advisors at Prudeo Partners are here to help you answer your questions through these times of uncertainty. Now may be a good time to review your plan and make any changes if they are needed. Go to www.prudeo.com to get started.

 

Works Cited

1 - Pandit, M. (2022, May 01). JP Morgan Asset Management. Retrieved from jpmorgan.com: https://am.jpmorgan.com/us/en/asset-management/institutional/insights/market- insights/investment-outlook/midterms/

2 - PGIM Investments. Retrieved from 2 - https://www.pgim.com/investments/getpidoc? file=7B347070524A4314A322ACCD454E0AED&utm_source=exacttarget&utm_medium=email&ut m_content=week45_Newsletter_IBD-All&utm_campaign=Newsletter&etid=148168847

3 - The Charles Schwab Corporation (2022). https://www.schwab.com/learn/story/will-midterms- affect-market-performance