What a great relief to have an up month after a year of downside and seemingly unending lows! The S&P 500 was up about 8%! The damper to it was the Bloomberg Aggregate Bond Index was down about 1%. It seems that traders are still expecting the Federal Reserve to continue their interest rate hikes, which is putting serious pressure on Conservative to Moderate investors. Once they’re finally done, I can see the bond index increasing alongside the stock index.
Since we’re heading into midterm elections, I get asked a ton of questions on whether it will affect our investment portfolios. As much as we all want to believe that “our party” will do a better job with the stock market, it is likely an erroneous notion. Historically, there isn’t a party that weighs heavily on the market when they are in full control of the government. It's also worth noting that midterm years underperform the stock market, but the year after has been generally pretty good, which bodes very well for 2023. There’s a great article with a ton of detail here, if you are looking for more depth.
So you might be now saying, well, it must make some difference due to policy changes by either party. Here you would be almost right…the markets like certainty. The only certainty that seems to sway the markets is that gridlock is good. This means that if both parties are in some control of Congress, then no big corporate policy changes will pass which allows companies to operate status quo. The checks and balances of government parties is well received by the markets. This is where I can share with you some of the data that can come into play. The image above shows the following from LPL Research:
When Republicans have controlled both chambers in Washington, DC, on average the S&P 500 has gained 13.4% per year and GDP has grown 3%. When Democrats have controlled both the House of Representatives and the Senate, the economy did a little better, with GDP growth of 3.3%, while the S&P 500 was up 10.7% on average. When we’ve had a split Congress, however, the average S&P 500 gain climbed to 17.2%, while GDP growth averaged 2.8%, again suggesting markets may prefer split power come November.
That’s about as deep I want to go into the politics of the markets as I’m sure you’ll understand. :) Now that we got that out of the way, we are into the holiday consumer spending season. Consumers still seem healthy and willing to spend. This should help with basic company bottom lines. There is also good news when coming out of these downturns. This article shows the upside of having a bad year. Also, you probably don’t remember October 13th, but there was a massive reversal of downside to upside as noted in this article. If you want the short story without needing to read it, a reversal of that magnitude only happened nine other times since 1983 followed by an average one-year gain of 14.6%.
Sure, it’s great to have good news emerge out of market chaos, but the bottom line is that the market always reverts to corporate earnings and fundamentals. Let’s keep our fingers crossed for good corporate fundamentals (but not too good because the Fed will want to raise rates faster) to end the year.
Happy Thanksgiving to you and your family!
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All investing involves risks, including the loss of principal.