The midterm elections do not seem to be generating a lot of buzz. Perhaps it is me though, not watching the nauseating cable news channels or the general apathy of the nation towards politics, except for watching House of Cards.
The S&P 500 price index is up an average of 17% from Nov 1st to October 31st following midterm election years since 1966. Over the last twelve midterms, there have been zero subsequent down years for the equity market.
So what will likely happen in the election? For that, we check in with Nate Silver of http://fivethirtyeight.com/. Nate Silver was previously with the New York Times 538 blog (538 is the total number of electoral votes in the presidential election) and is now a media star. With his statistical modeling and forecasts, he accurately predicted the electoral results in 49 of the 50 states in the 2008 presidential election and all 50 states in 2012. He is also a best-selling author of The Signal & the Noise and developed models used for forecasting baseball players and team results. Suffice to say, he has an edge in predicting events. He sees a very strong chance of Republicans winning a majority of the Senate by taking seats in Montana, South Dakota, West Virginia, Arkansas, Louisiana, and a good shot in a few other states for a total of 53 seats.
With that kind of election results, the story and reasoning behind strong stock market performance could be coming together. Traditionally, both parties want voters feeling good going into the next Presidential election year, so a form of fiscal stimulus translating into stock market performance is an unstated policy objective. Checking in with the latest commentary from our favorite Washington D.C. insider Greg Valliere, Chief Political Strategist for Potomac Research Group, thinks a Republican controlled House and Senate has a strong chance at corporate tax reform. This could stem many of the offshoring of U.S. businesses headquarters to tax-friendly Ireland or the Cayman Islands and be a positive catalyst for the stock market and stimulus for the domestic economy. Healthcare and energy reform are unlikely due to the President’s likely veto.
We (along with Nate Silver) would need a few centuries of midterm election data points to say with a high degree of statistical confidence that equity markets will perform well after the election, however, this is a good exercise in seeing what could go right. There are plenty of obstacles to overcome though with Europe on the edge of recession (again), concerns about the Fed’s monetary policy, and a back drop of valuations above long term averages.
For more information, please contact Aurum Wealth Management Group at 440-605-1900 or visit our website at aurumwealth.com. To stay up to date with the latest investment-related news, follow us on Twitter @aurumwealth and sign up to receive our free newsletter.
This material is based on public information as of the specified date, and may be stale thereafter. We make no representation or warranty with respect to the accuracy or completeness of this material. Aurum Wealth Management Group and/or Aurum Advisory Services has no obligation to provide updated information on the securities or information mentioned herein. Actual events may differ from those assumed and changes to any assumptions may have a material impact on any projections or estimates. Other events not taken into account may occur and may significantly affect the projections or estimates. Certain assumptions may have been made for modeling purposes only to simplify the presentation and/or calculation of any projections or estimates, and Aurum Wealth Management Group and/or Aurum Advisory Services does not represent that any such assumptions will reflect actual future events. Accordingly, there can be no assurance that estimated returns or projections will be realized or that actual returns or performance results will not materially differ from those estimated herein. This material should not be viewed as advice or recommendations with respect to asset allocation, any particular investment, or any tax advice.