S&P 500 Performance Around the Past 14 Midterm Elections

With Q4 underway and midterm elections just days away, US stocks are entering a historically bullish three-quarter stretch, as Ken Fisher discussed in his June 3 USA Today column and this video. Since 1926, S&P 500 returns during Q4 of the midterm year—and each of the subsequent two quarters—have been positive 87% of the time, far above stocks’ non-midterm 64.6% quarterly frequency of positivity.^[i] In the 23 historical nine-month periods between September 30 of a midterm year and the subsequent June 30, US stocks rose 21 times—a 91.3% frequency. But this year, markets’ rocky October—in which the S&P 500 fell -6.9%—has some wondering if midterms’ bullish impact has been preempted.^[ii] In our view, there is little reason to suspect so at this point. Weakness in advance of US midterm elections is surprisingly common. The S&P 500 declined in eight midterm-year Octobers since 1926.^[iii] Q4 finished negative just twice. The nine-month period? Only once—in 1930. Simply, seeing weakness at times—especially ahead of the vote—isn’t uncommon. The following are charts of the S&P 500 for every midterm year and subsequent two quarters going back to 1962. You have to go all the way back to 1958 to find an example where the market didn’t experience some sort of weakness in advance of the midterm election. In our view, this illustrates the fact weakness before the vote doesn’t negate midterms’ bullish impact.

Exhibit 1: 1962 – 1963

Source: FactSet, as of 10/30/2018. S&P 500 price index level, 1/1/1962 – 6/28/1963.

Exhibit 2: 1966 – 1967

Source: FactSet, as of 10/30/2018. S&P 500 price index level, 1/3/1966 – 6/30/1967.

Exhibit 3: 1970 – 1971

Source: FactSet, as of 10/30/2018. S&P 500 price index level, 1/1/1970 – 6/30/1971.

Exhibit 4: 1974 – 1975

Source: FactSet, as of 10/30/2018. S&P 500 price index level, 1/1/1974 – 6/30/1975.

Exhibit 5: 1978 – 1979

Source: FactSet, as of 10/30/2018. S&P 500 price index level, 1/2/1978 – 6/29/1979.

Exhibit 6: 1982 – 1983

Source: FactSet, as of 10/30/2018. S&P 500 price index level, 1/1/1982 – 6/30/1983.

Exhibit 7: 1986 – 1987

Source: FactSet, as of 10/30/2018. S&P 500 price index level, 1/1/1986 – 6/30/1987.

Exhibit 8: 1990 – 1991

Source: FactSet, as of 10/30/2018. S&P 500 price index level, 1/1/1990 – 6/29/1991.

Exhibit 9: 1994 – 1995

Source: FactSet, as of 10/30/2018. S&P 500 price index level, 1/3/1994 – 6/30/1995.

Exhibit 10: 1998 – 1999

Source: FactSet, as of 10/30/2018. S&P 500 price index level, 1/1/1998 – 6/30/1999.

Exhibit 11: 2002 – 2003

Source: FactSet, as of 10/30/2018. S&P 500 price index level, 1/1/2002 – 6/30/2003.

Exhibit 12: 2006 – 2007

Source: FactSet, as of 10/30/2018. S&P 500 price index level, 1/2/2006 – 7/2/2007.

Exhibit 13: 2010 – 2011

Source: FactSet, as of 10/30/2018. S&P 500 price index level, 1/1/2010 – 6/30/2011.

Exhibit 14: 2014 – 2015

Source: FactSet, as of 10/30/2018. S&P 500 price index level, 1/1/2014 – 6/29/2015.

Exhibit 15: 2018 – 2019 (Through 10/30/2018)

Source: FactSet, as of 10/31/2018. S&P 500 price index level, 1/1/2018 – 10/30/2018.