Nov 3, 2018

The no-lose scenario for stocks after the midterms

llustration: Aïda Amer/Axios

Midterm elections have historically been a no-lose scenario for stocks. Dating back to the 1950s, the S&P 500 has always been higher a year after the midterms, no matter the outcome. According to Capital Ideas, stocks in the year following midterms have performed twice as well as other years.

The bottom line: Markets may shrug if there is a Democratic sweep, because the next Congress is "very unlikely to undo the major market-impactful legislation that has already been passed under President Trump," like tax cuts, strategists at UBS point out.

If Republicans maintain control, stocks could jump higher temporarily, Art Hogan, a strategist at investment firm B. Riley FBR said, because investors will think "here comes more deregulation, and tax cuts 2.0 — but then they will realize we might have more work to do than that."

The impact on the economy is more uncertain.

  • If Democrats take the House and the Senate, brace for "slower economic and employment growth," since it eliminates the possibility of another tax-cut boost to the economy, John Herrmann, who heads up interest rate research at MUFG Securities, wrote in a note.
  • Gridlock won't "capsize the economic boat," S&P Global's chief economist Beth Ann Bovino wrote in a research note, but it will create big questions around government spending, which boosts economic growth.

What to watch: The midterms are in "second place" on investor's minds after worries about China and trade, Hogan said.

Go deeper

Coronavirus dashboard

Illustration: Sarah Grillo/Axios

  1. Global: Total confirmed cases as of 12:30 p.m. ET: 1,056,777 — Total deaths: 55,781 — Total recoveries: 221,262Map.
  2. U.S.: Total confirmed cases as of 12:30 p.m. ET: 257,773 — Total deaths: 6,069 — Total recoveries: 9,311Map.
  3. Politics latest: Lawmakers on both sides of the aisle are worried about the difficulties of delivering the $2.2 trillion in stimulus aid.
  4. Jobs update: The U.S. lost 701,000 jobs in March, but the new report doesn't reflect the height of the virus' impact on the economy.
  5. World update: About half of the deaths worldwide are in Italy and Spain, with fatalities exponentially increasing across Europe.
  6. Social media: Bored athletes take to Instagram to connect with fans during coronavirus shutdown.
  7. What should I do? Answers about the virus from Axios expertsWhat to know about social distancingQ&A: Minimizing your coronavirus risk.
  8. Other resources: CDC on how to avoid the virus, what to do if you get it.

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Illustration: Sarah Grillo/Axios

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Illustration: Aïda Amer/Axios

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