Discussing Historical Data from Midterm Election Years and What To Do In Your Portfolios
November 1, 2022
Welcome to Wealth Enhancement & Preservation’s Market Minute, where we get to update you on everything that happened in the financial markets this week. My name is Cody Moore, and I am a Wealth Advisor at Wealth E&P’s Alpharetta, Georgia office.
Today we're going to look at last week's performance and historical data from midterm election years. The three major indices all finished positively on the week: the Dow Jones led the way up 5.72% and finished out what was a fairly volatile October.
The big question on everybody's mind is: will this be another short-term rally or could these positive returns continue throughout the rest of the year, being that the midterm elections will finally provide some certainty in markets?
We'll take a look above at the S&P 500 dating back to 1962 and what has typically happened. On average, the decline during midterm election years is 19%. With all the craziness that's going on this year such as coming out of COVID, the war in Ukraine, and decades-high inflation, we've actually tracked right along. That number is down slightly over 19% for that entry-year number. The average performance for the year following a midterm election is actually up 31.6%. The number of times we've had a negative return in that following year is zero. Of course, what has happened historically doesn't tell us exactly what will happen in the future. However, it is somewhat of a silver lining going into this next period.
What can you really do with that information? Well, there are two categories to pay attention to here. If you're a longer-term investor, this chart below shows what has happened on average when the S&P is down 20% from highs.
There is a very desirable risk-to-return ratio here if you're a longer-term investor. You've got a better chance at a very high gain versus a lower loss as the chart above can show. More importantly, what this shows is this: if you are a shorter-term investor or you are nearing a retirement date, it is a really good time to make sure you've got a risk mitigation strategy built into your investments and your portfolio.
If you have any questions for our team, would like a second opinion on any of your investments, want a risk profile, or would like a retirement projection, please feel free to reach out or visit www.wealthep.com. Otherwise, stay tuned for our next Market Minute! We hope you all have a great week.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
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