October 18, 2018 | by James Behr Jr
As this year’s midterm elections quickly approach, both political parties in the U.S. and the U.S. equity markets are facing uncertainty. The elections present the opportunity for Republicans to maintain control of Congress while Democrats are hoping to take control of the House of Representatives. Similar to equity markets, there are several “experts” that are predicting the outcomes of the impending elections but as the 2016 presidential election has proven, the only thing certain is uncertainty.
The uncertainty with these elections can be added to the ever-growing list of reasons for investors to be worried about U.S. and international equity markets. Uncertainty, whether it is within government, the economy, or any financial sector, is always going to present caution in the markets amongst investors.
The Wall St. Journal recently published an article focusing on the possible effects of the midterm elections on U.S. equity markets. Any chance of upsetting the apple cart relating to policy will have an effect on equity markets, to what extent would be the real uncertainty. The journal states that “A scenario in which Republicans lose their majority could trigger short-term volatility for the stock market, introducing uncertainty over the future of policies ranging from tax cuts to immigration.” Legislation that has been introduced thus far under the Trump Administration has been viewed favorably by U.S. equity markets and investors have experienced strong returns since Donald Trump was elected in November 2016. Most notably, tax cuts have “helped boost corporate earnings…their fastest pace of earnings growth since 2010.”
But should investors in U.S. equities be worried? According to the article, “even when the president’s party loses seats in Congress, history shows stocks have tended to rise. Many analysts note that the year after the midterms has historically been the best of the four-year cycle for stocks.” Furthermore, “The S&P 500 hasn’t declined in the year after midterm elections since the 1946 cycle – and has climbed 15% on average – regardless of which party won or lost control of Congress.”
Between now and November 6, election day, you will certainly here a lot of noise about the midterm elections and their effect on market returns for the remainder of this year. We always encourage our clients to stay invested in the markets as long-term gains almost always will outweigh the short-term volatility we may see. As always, if you have any questions about your accounts or if you are interested in learning more about how we help our clients save and invest for their future, please contact our office at (610) 825-3540 or at firstname.lastname@example.org.