Historically a Democratic House Could Mean Lower Stock Returns

A lot has been written recently about how U.S. stocks usually perform well after the midterm elections. But a deeper dive into the data shows the post-midterms rally hinges on the majority party maintaining control of the House.

Data compiled by Fundstrat Global Advisors showed the median stock market return since 1896 was only 1.9 percent a year after the House majority flipped from one party to the other. Meanwhile, the median return totaled 16.8 percent when the House majority stayed the same after the midterms.

Fundstrat used Dow Jones Industrial Average data to calculate returns before 1945 and S&P 500 data for returns post 1945.

Democrats are expected to take control of the House away from Republicans after Tuesday’s elections. In the Senate, the GOP is expected to maintain a slight majority over the Democrats.

Many investors are looking at the average gains following all midterm elections and not parsing the data like Fundstrat did. For example, data from Kensho shows the S&P 500 has averaged a gain of 0.95 percent one week after the midterms since 1980. They also show the broad index climbs on average more than 2 percent a month after the election and 5.4 percent in three months.

via CNBC