Personal Wealth Management / Expert Commentary

Ken Fisher, Reviews What to Expect After the Midterm Miracle

Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer Ken Fisher discusses that while, historically, the second half of post mid-term election years are not as strong as the first, the two quarters following the Midterm Miracle are often positive as well. Ken says markets tend to fare positively in this period due to low legislative risk. In this case, with the House of Representatives controlled by one party and the Senate by another, Ken expects political gridlock to be an underappreciated bullish tailwind for markets through next year.

Transcript

So folks often focus on calendar years, calendar quarters. I understand why. And there's something to that. The reality is we just had a great first half of the year and people have concerns about what the second half be. Maybe if the first half was so good. Second half won't be as good. So if you've been watching my videos in the past, read my columns in the New York Post. See other things that I put out on my Twitter feed or whatever. You know that I've made the point not just this time, but before and before and before and about every before years that the nine months that began on October 1st. Of a midterm election year is the most consistently profitable period in all of stock market history, and I've pounded the table on that for a long time before this cycle.

And the fact is, I coined a phrase for it a long time ago. The mid term miracle. We had a great mid term miracle this. Time, and the fourth quarter was positive last year, starting at the beginning of this bull market and then the next two quarters were similarly positive, each of them running around 7% a little over. So we end the first half, up more than 15% on the S&P 500. And that 's a great first half of the year and it's a great conclusion to the midterm miracle. So what happens after a midterm miracle? And on that, we got a lot of data because we got history going back with really accurate data going back to 1925. And we can say that the back half of third years of president 's terms, the aftermath of midterm miracle, is not as positive as the first half, first half positive of 92% of all years. But the back half positive, about 80%. And the average return in the back half isn't as good as in the first half. But on average, it 's about five and one half percent. Excuse me, I misspoke myself. It's about seven and one half percent, about half of what you get in the first half. Half of the half. But the fact is, it 's still pretty good. And in fact, going back to 1925, there have only been two periods where the back half of the double digit negative one, 1931 going into the Great Depression.

And then two in the flash crash of 1987, arguably the fastest bear market in history, which it really isn't, because the 2020 Covid bear market was the fastest bear market in history, but it was the fastest bear market in history for a long time. And that time period in the 1931 time period don 't look anything like this time period. And other than that, the back half has only ever been off of the six times ever that the back half was negative. The worst ever was down 3.7%. This is not a very dangerous time. And why? Because the same thing that causes. The mid term miracle, which is the shift from high political risk aversion in America.

As big legislation is going through boom, boom, boom. In the first two years of the president's term, like we had in President Biden 's presidency, but before that, in President Trump's presidency and before that in President Obama 's presidency, and then George W Bush and then Bill Clinton, etcetera. All big, huge, scary, controversial legislation in modern American history. Uh, goes through in the first two years and we all get freaked out by that. And then the midterms bring in absolute or relative gridlock, and that stops. And the chatter and the political rhetoric keeps being blah, blah. Blah, blah, blah.

But the actual legislation just quiets down, which you may have noticed, but it takes us a long time to adjust to the fact that you get stability for a few years. You get relative quiet in your ability to plan, and businesses love that. So in in that reality, the effect lingers longer. I'm just going to go on a little further. The fourth year of a president 's term isn't nearly as good as the third year. The third year has the miracle and the aftermath of the miracle. But the. Fourth year president 's term has been positive, 83%. History. In the history of the S&P 500 and has lower average returns than the third year. Only a little over 11%.

But it's still pretty nice. This is not a bad time. Most of the risk in the stock market in the United States and overseas because overseas tends to ripple to what the US market does with a reasonably high correlation. But most of the risk is in the first two years where you get a lot of big double digit positives, but you also get a lot of negative years in both the first and the second year. We 're not there now. So my general advice is, yes, can we get downturn from here? Of course we can. It's the odds of that high. No, it 's low. And it takes something big, bad and that we're not all talking about to make that happen.

Because if it 's big and bad and we're all talking about sort of it priced into the market now, and if we 're talking about all kinds of things people are afraid of that are false, fear of a false factor is always bullish when things turn out to be better than people feared because it was a false factor. And that surprises bullish. So my general view is this is a pretty good time to own stocks as good as six months ago. No, of course not. Is as good as it was nine months ago. No, of course not. But the reality is it's still a pretty good time. It 's still a bull market and you should enjoy it. Thank you for listening to me. Subscribe to the Fisher Investment YouTube channel. If you like what you've seen, click the bell to be notified as soon as we publish new videos.

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