Are you ready for the mid-terms?

The 2022 mid-term elections will take place on Nov. 8, 2022. The importance of the mid-term election for the markets, surprisingly, is not if the Democrats or the Republicans win the House or Senate. The important factor for the stock market is a post mid-term election result. Markets hate uncertainty and invoke turbulent price swings due to the reshuffling of the congressional deck. Since 1970, the standard deviation of the S&P 500 during mid-term years is 16% compared to all other years of a 13% standard deviation. Standard deviation is a term that represents the measurement of volatility or variance of price. The volatility in stock prices in mid-term election years can move erratically compared to the normal weekly, monthly, or annual movement of the S&P 500.

Throw in the highest inflation our economy has seen in 40 years, a 300%+ increase in the fed funds rate (YTD), and a raging U.S. dollar cutting into S&P earnings equals the perfect Bear Market Souffle that even Chef Gordon Ramsey would be proud of. The standard deviation of the S&P 500 for 2022, as of this writing, is 20.25% or a 56% increased volatility in the S&P price movements compared to normal market years.1

Once the mid-term results are announced and the uncertain political change becomes certain, the markets have a history of getting back on track. There have been 15 mid-term elections since 1962 and the S&P 500 performance has been positive 100% of the time from the election date through the following six months and also positive one year from the mid-term election market price.

One additional point I wanted to highlight from the historical mid-term election chart. There is no evident correlation between the elected political party and market returns following the election. This would be a good lesson for long term investors to leave politics out of your portfolio. Not to say that future fiscal policy changes cannot impact market swings or change your future tax liability on your investments. The weight of evidence does not convey any correlation to political party wins or losses for market performance after mid-term elections.