Midterm Election Thoughts

Per the chart below, the NY Times has an 83% probability of Republicans obtaining control of the House of Representatives and a 66% chance of Democrats retaining control of the Senate. Unknown races, as of 11/9/22, still include Arizona, Nevada, and Georgia. The final control of the Senate may be decided by the Georgia runoff election on December 6th

The midterm elections have concluded, but the results are still pending. Pre-election polls reflected a high probability of Republicans taking control of both House and Senate. The actual results were more indicative of a slight rotation and less of a significant transition. 

Using history as a guide, the S&P 500 has traditionally done very well after mid-term elections are decided. This performance has included several different election outcomes. The data below reflects that, since the 1950s, the year following a midterm election has an average of 15.3% return. Again, this performance is not tied to any specific political party or whether there was significant change or a status quo.

Further, post-election a Democrat will remain President and the most likely outcome is a mixed or Republican controlled Congress. As seen in the chart below, the S&P 500 has performed well during these times as well1. Since 1932, the best investment returns have been when a Democrat was the President and Congress was split, which returned 14% annually. Historically, the other possible outcomes with a Democrat as President also performed well, returning 13% with a Republican Congress and 10% with a Democratic sweep.

While the election results aren’t yet fully known, Gradient Investments will continue to focus on fundamentals over politics to make investment decisions. These fundamentals include the health of the economy, the growth of businesses, and the valuation of the underlying companies in the marketplace.  We believe politics and portfolios do not mix. Instead, we focus on investment plans that customize solutions based on the objectives for your money, time horizons, and the risk investors can accept and tolerate. Most investment plans outlive current political trends and investing based on the changing tides in Washington is not a practice we recommend.

  1. https://www.rbcinsightresearch.com/ui/main/report/4f84e6b1-823f-4dd8-9bf5-be7227501764