Nearly half of the investors in the United States are worried about the upcoming November 3 midterm elections, which happen in the middle of the president’s four-year term of office. About 48 per cent of investors are concerned about the impact of the polls on the market, according to a Morgan Stanley survey.
Historical data shows that a unified or a divided government does not necessarily hurt stock market returns. However, market volatility tends to be higher when Republicans and Democrats share power in Washington. Still, markets have usually bounced back after midterm elections once uncertainty fades. This is supported by investors having broader clarity over the policy and political landscape.
A 50-year analysis by asset manager Janus Henderson has found that the S&P 500 delivered average annualised price returns of 9.24 per cent under a divided government, compared with 8.73 per cent under a unified government.
“Higher volatility during years with split control may have been caused by policy uncertainty, but a counterargument is that split government potentially insulated voters and the economy from some of the most ambitious intentions of a single party,” wrote Seth Meyer, global head of client portfolio management for Janus Henderson. “In short, gridlock may be good,” the analyst was cited as saying by CNBC .
Since 1974, the S&P 500 index has delivered an average return of 5.7 per cent in the three months after the vote. It posted gains in 11 out of 13 years. Over six months, the average return was 12.4 per cent, with gains in all 13 years, according to Schwab’s Townsend analysis cited in the report.
