Markets after U.S. midterms…by the numbers

Surprising historical performance data following U.S. elections

U.S. midterm elections took place on Tuesday, November 3. Currently, the Republican party is in control of the House and the Senate. This vote will essentially be a referendum on the Republican party’s body of work. It’s likely the composition of either the House or the Senate will change. The question for investors is simple: Does this matter for your money?

What follows is a historical look at equity market performance under a Republican president and different compositions of Congress. Exhibit 1 illustrates equity market returns under a Republican president with differing congressional control.

The key takeaway is that one-year forward S&P 500 returns were positive under all combinations of executive branch leadership under a Republican president going back to 1954.

Exhibit 2 digs deeper and shows a breakdown of sector performance.

Conclusion

Investors have a tendency to believe that politics heavily influence equity markets. The reality is quite different historically after midterm elections. We can’t state with certainty that history will repeat, and we must be cognizant that there are many other factors involved in returns; namely corporate fundamentals, the level and direction of interest rates, regulation, policy changes, etc.

Christian J. Galipeau is Head Market Strategist, Franklin Templeton Institute.

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