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How Will the Election Affect Your Investments?
The mid-term elections are almost upon us. It is almost a certainty that there will be a substantial shift in the balance of power in congress. Although smart investors keep their politics and their investment strategies separate, it is still a good idea to consider how the election will affect your investments. In this regard, Forbes has some thoughts about the risk to stocks from the mid-term election.
We currently think there is only one scenario that has a reasonable probability of happening, looking at current political polling. (Yes, we get that polls are flawed but, in the aggregate, they do provide us insight). The highest probability scenario is the Democrats take the House, and Republicans retain the Senate.
Going back to 1934, the President’s party has lost seats in the House 86% of the time in midterm elections.
The bottom line to their argument is that a politically divided congress is worse for investors than when the same party controls both houses. All spending bills must, by law, start in the House of Representatives. But, both houses of congress and the president need to concur for a bill to become law. Divisive issues such as health care immigration will likely be hamstrung for the next two years. Issues such as infrastructure spending, trade, and antitrust law will have some hope of gathering a consensus and getting passed.
Will There Be A Correction and a Recovery?
A couple of months ago we asked if the mid-term elections would cause you to lose money. That analysis ignored who won or lost in mid-term elections and just looked at how the stock market fared afterwards. The insights came from Zack’s Investment Management.
Going back to 1962, the average correction during a midterm election year was an eyebrow raising -19%.
Since 1962, the average bounce for stocks following the midterm correction was a sturdy +31%.
According to these folks, you may lose money going into the mid-term election but gain more afterwards.