by Gary Alexander

April 26, 2022

You would think that the NFL ‘Washington Football Team’ (once known as the Redskins) could do better than name themselves “The Commanders,” but that’s apparently what two years of executive brainstorms and million-dollar marketing consultants came up with. It’s apparently a play on the Commander-in-Chief, but bear in mind that our Constitution only authorizes one Commander, not a team of 53 of them, and POTUS is effectively only Commander in a war, which must be authorized by Congress declaring it.

Since it’s only 196 days until the midterm 2022 elections, let us pause to give thanks that in the midst of the next NFL season, many desk-bound Washington Commanders will be voted out of office, and many of those desk-jockeys who think they are our Commanders, instead of public servants, deserve a pink slip.

If voters do what they did to our last four leaders – Clinton, Bush, Obama, and Trump – they will deliver a blessed reversion to Gridlock – that even-handed state of non-partisan compromise in which one Party controls the White House and the other Party controls Congress and therefore far less mischief is possible.

The stock market usually performs much better under Gridlock than when either Party controls all levers of political power. Either Party tends to get drunk with power when they have no opposition to veto them.

The bad news is that the stock market usually performs the worst (of the four-year political cycle) during the mid-term election year. Since 1946, the mid-term election years grow only half as fast as other years:

Average S&P Returns in the 4-Year Political Cycle (1946-2021)
Average mid-term election year performance: +5.03%
Average performance, all other years: +10.26%
Average all years: +8.95%
Average mid-term election year through September 30: ZERO
Average mid-term election year, last quarter: +5%!
(Source: The Bespoke Report, April 22, 2022)

Stock Market Performance During Mid-term Election Years Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The recent record is much worse, since this 75-year track record includes bonanza mid-term election years like 1954 (+44%) and 1958 (+34%). If you just count the last 15 cycles – from the double-whammy year of the 1962 U.S. Steel crisis and Cuban Missile crisis– the average return in mid-term years is flat: +0.1!

Standard and Poor's 500 Returns in the Last 15 Mid-term Election Years Table

This year, the S&P 500 is down 10.4% through April 22, 2022, with half of that loss coming in the two days since Fed Chair Jay Powell started musing aloud about “50 basis point” rate increases last Thursday.

According to Bespoke, “The 10.4% decline YTD is currently the worst performance through April 22nd of any midterm election year since 1946, surpassing the previous record from 1970, when the index was down 8.5% through the same point of the year.” Back in 1946, just after World War II, the Republicans gained 57 seats in Congress after the FDR-led Congress controlled all levers of power since 1932.

The most amazing recent trend is that each of the past four Presidents has been powerfully repudiated in the mid-term elections, with three of the four (all but Bush) repudiated in their first term. There is no reason to believe that this trend will be reversed with Joe Biden, considering his low approval ratings.

  • On November 8, 1994, the Republicans gained 8 seats in the Senate and 54 seats in the House to gain control of the House for the first time in 40 years as a part of the “Republican Revolution” against Clinton’s more extreme measures, including his wife’s nationalized healthcare initiative. Clinton blamed Fed Chair Alan Greenspan, who raised rates five times in 1994. The S&P 500 was 463 the day before the election. It more than tripled in the next five years of DC “gridlock.”
  • On November 7, 2006, the Democrats took back a net six seats in the Senate and 31 seats in the House to take back control of both Houses of Congress from the Republicans under George W. Bush, as voters were seemingly tired of the endless wars and deficit spending under the once-cost-conscious (now spendthrift) Republicans. The S&P 500 gained 12.3% in the next 11 months.
  • On November 2, 2010, there was the most overwhelming reversal of power in any U.S. mid-term election – what Charles Krauthammer called a “restraining order” on President Obama – with the Republicans gaining 64 seats in the House, largely as a result of the new “Tea Party” movement. The S&P 500 was 1,184 the day before that election, and it has quadrupled in the last 11+ years.
  • On November 6, 2018, the Democrats gained a net 41 seats in the House to take back control of that chamber, although the Republicans remained in control of the Senate. The S&P gained over 25% in 2019 as the economy was booming in all sectors by the end of the decade, pre-COVID.

The 2018 market reaction was something of an outlier, since Fed Chair Jerome Powell raised rates one time too many in December 2018 and sent the market reeling. That was not election related, so if we omit 2018, the following chart shows how the previous six mid-term elections provided a boost to the market:

Average Standard and Poor's 500 Performance Following Mid-term Elections Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

So, each of the last four Presidents has been repudiated by the voters at the mid-term elections, returning us to gridlock. What are the chances an aging Joe Biden, with his spend-and-inflate record, can avoid this fate? The latest betting odds – as of April 24, 2022 – favor Republicans winning the Senate, 76.9% to 23.1%, in November, and an even higher chance (85.6%) that the House will turn Republican this Fall.

Until then, hopefully the very low approval ratings for both Biden and Harris will keep these big spenders in check, afraid for their jobs come 2024. It might not save them in the end, but it will help the market.

I’ll close with two more charts pointing to the potential market profits to come – from Forbes Advisor:

Average Market Returns During a Presidential Term Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

After Mid-term Elections Markets Tend to Rise Bar Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

This final chart shows the best nine months of the four-year Presidential cycle – the fourth quarter of year #2 and the first two quarters of year #3 (that’s October 1, 2022, to June 30, 2023, in the current cycle). No promises, but this is one of the most reliable historical indicators, and something to look forward to soon.

All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.

Please see important disclosures below.

About The Author

Gary Alexander

Gary Alexander has been Senior Writer at Navellier since 2009.  He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks.  For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.

Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s.  He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division.  Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander

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