Elections always bring uncertainty to the market. Midterm elections especially, since historically the current party in charge tends to lose seats, but there’s no guarantee of that happening. In politics, as we know, there’s no guarantee.
So how do we predict? We can look back and see what has occurred over roughly the last 17 midterm elections. What happens? Going into an election, the market is uncertain, but after the election, stock markets have increased. Stock prices have gone up. Now, it could have gone up 2%, it could have gone up 17%.
So, one can suggest that “Well, gee, you know, if that’s true, then let’s power in and put as much money into it as we can.” But remember, the crazy thing about investing is that just as you think you are certain, it remains very uncertain. I would not suggest investing heavily just by looking at the post midterm market information. Simply put, that is a single factor and life is not binary.
So, what are some of the other reasons that we think that this may or may not be true going forward?
Number 1: We have not had a situation where we’re anticipating a recession right around the corner right after a midterm – literally, right after the midterm.
The market is actually on pins and needles about it. The economy is slowing and that doesn’t bode well for corporate earnings nor revenue nor anything else that has to do with the stock market.
Number 2: Interest rates are rising and continue to rise as we’ve been expecting and been widely broadcast.
When interest rates go up, the multiple – or how many times over your dollar of earnings from corporations can be spent – shrinks, and that’s not good either. So, the multiple is shrinking potentially, and the revenue is shrinking potentially, and potentially, we’re going into a recession. Doesn’t bode very well for stocks.
That’s not to say that we couldn’t possibly have a sudden, you know, increase in stock value because it’s been kind of beaten up so far this year.
Number 3: Seasonality tells us, “Hey, it is coming end of the year.” And if you look back in history, the last month/month and a half of the year is what we call a ‘Santa Claus Rally’ and an excitement, joyful.
People are excited so they pile money into stocks. That may happen.
It may also happen because, after midterm, all those things could happen. But in a more generalized economic environment, we think that the economy is very challenged, and the market may not rise this time.