Atlanta Financial Blog

Will the Midterm Election Results Cause a Major Market Move? History Says Otherwise

Julianne F. Andrews, MBA, CFP®, AIF®
October 23, 2018

With news from the White House and Congress peppering the landscape continually, and the media covering midterm elections that historically might have gotten much less attention, investors are likely wondering, “Will the outcome of the midterms—whatever it is—influence my portfolio?”

The short answer is “probably not,” for several reasons we’ll discuss below. In a nutshell, historical analysis shows that other factors have far more impact on the stock and bond markets than elections.

Election cycle influence. Is it real?

Analysts have examined this issue under a microscope for more than a century, and there is little definitive evidence, either way, for elections having significant influence on the market. Regarding midterms, specifically, the Wells Fargo Investment Institute analyzed the S&P 500 back to 1962 and found that, on average, during midterm cycles stocks see a pullback of around 19% before the election and a rebound of more than 31% afterward.

However—and this is important to note— these average losses and gains happen no matter what the outcome is, or which parties gain or lose seats.

The analysts ascribed the fluctuation to uncertainty, not politics. “It does not matter which party was in charge before or after the midterm election. The removal of uncertainty and of constant media attention allows markets to resume focusing on fundamentals,” noted analyst Craig Holke in the report.

The true market indicators.

According to research by the investment education website Investopedia, “Confidence in the stability of future investments plays a large role in whether markets go up or down.” Events that cause extreme uncertainty, and that Investopedia’s research found play a greater role on the stock market than elections, are:

  • Wars or other conflicts
  • Concerns over inflation or deflation
  • Government fiscal and monetary policy
  • Technological changes
  • Natural disasters / extreme weather fluctuations
  • Corporate or government performance data

As many of us may remember, the largest single-day decrease (7.1%) in the history of the Dow Jones Industrial Average (DJIA) occurred on September 17, 2001. This move is largely attributed to the September 11 terrorist attacks in the United States, which created a lot of uncertainty about the future.

Of course, each election cycle is different, and world and local politics are particularly tumultuous right now. Nothing is set in stone due to—you guessed it—uncertainty. In the final analysis, uncertainty is perhaps the greatest driver of market moves, and it’s one that investors can largely overcome with a sensible investment strategy.

Astute investors succeed by embracing two key realities of the market:

  • Paying attention to the fundamentals of growth, earnings and valuations is a winning strategy; scrutinizing the daily news for clues to market shifts is not.
  • Taking a long-term view of investments has been proven to pay off, time and time again.

To repeat an oft-cited quote, “Investing should be like watching paint dry or watching grass grow. If you want excitement…go to Las Vegas.”

The foregoing content reflects the opinions of Atlanta Financial Associates, Inc. and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct.

Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns.

All investing involves risk, including the potential for loss of principal. There is no guarantee that any investment plan or strategy will be successful.

Share This:

Share on facebook
Facebook
Share on linkedin
LinkedIn
Share on twitter
Twitter
Share on google
Google+

Legacies: The DOs and DON’Ts of Receiving an Inheritance

Losing a loved one is very disorienting. If an inheritance is associated with the love one’s passing, that gift can cause a host of emotions, conflicts and decisions.  Whether you knew about the inheritance or not, it can be overwhelming to receive a lump sum of money or property. I know this from both personal and professional experience.  With experience comes insights, and I would like to share these insights with you as a “dos and don’ts” list.

Read More »

Could the 529 Be the Holy Grail of Asset Protection?

These days, physicians face increased risk from lawsuits, judgements, creditors, and malpractice claims, yet one of the most common mistakes they make is relying solely on their insurance policies to protect them in these high-stakes situations. Not only do they overestimate just how far their personal and professional coverage will go but they also generally have no backup plan to pick up where their policies leave off. So, how do you protect your income and estate from legal claims? By integrating a number of diversified asset protection strategies into your overall financial plan.

Read More »

Julianne Andrew’s Featured in Medical Economics

Recently, Julianne Andrews MBA, CFP®, AIF® was featured in Medical Economics’ Money news section. In an interview, she walks through some steps physicians can take to protect their personal assets. Julie states, “There’s a few of things you can do, a lot of times people want to hop to very complicated things right off the bat, but there’s some very simple things you can do that will protect your assets.” You can view the short interview video by clicking here. 

Read More »

“COVID-ed” Lessons: Four Things the Pandemic has Taught Us About Savings in the Face of Financial Uncertainty

In my life and career, I have found three things overwhelmingly true with money:
1) The unexpected is inevitable- you better be prepared financially.
2) To accomplish something meaningful with money, a commitment to saving is implicit.
3) Wealthy individuals all seem to resiliently pursue a discipline of saving money despite their circumstances.
The common denominator across these three principles is simply a commitment to saving money. It is the foundation upon which all other financial success will be built. And 2020 has challenged that resolve thus far.

Read More »