Expect a Post Election Rally

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From Seeking Alpha

By Don Miller

The Democrats and Republicans have spent a record $3.5 billion in preparation for this year's midterm elections. But regardless of the outcome, the good news is that the stock market traditionally has performed well during midterm election cycles.

"The question is, 'Did the markets go up in the midterm election years by more than average in non-election years?' Brian Gendreau, market strategist for Financial Network told U.S. News & World Report. "And the answer is, 'Yes, by a huge amount more.'"

In the period from 1922 to 2006, the average gain of the Dow Jones Industrial Average over the 90 trading days following midterm elections (roughly November until mid-March) was 8.5%, according to a new study authored by Gendreau. That's almost 5% higher than the Dow's gains in non-election years.

During that period, the only time the ruling party gained seats in both the House of Representatives and Senate was in the 2002 elections, and the market fell afterward - making it the only time since 1942 that the Dow has fallen after a midterm election.

In the days before midterms, the market generally tends to perform well, just as it has this year. "The market starts to go up beforehand and it just doesn't stop," said Gendreau.

While past performance is no indication of future success, consider this: The Standard & Poor's 500 Index has posted gains for every 200-trading day period following mid-term congressional elections since 1942. Stocks surge, on average, by a whopping 18.3% in those 200 days, according to the Leuthold Group, a Minneapolis-based investment-research firm.

The S&P index chalked up its biggest 200-day gain, 30.5%, in 1942, as the tide began to turn in World War II. The smallest gain, 3.9%, came in 1946, as investors worried that the economy would sink into another depression.

End of Uncertainty Fuels Rallies

Generally, the party of the president tends to do poorly in midterm elections. Since 1942, the party in control of the White House has lost an average of 28 seats in the House and four in the Senate.

In the 11 midterm elections between 1942 and 1982, control of one or both houses of Congress flipped just twice. But in more recent elections, a majority of Americans have expressed their unhappiness with the party in power. Voters have ousted the party in power in Congress four times in the past six elections.

Since the midterms tend to be an equalizing force on Capitol Hill, many experts have said that this proves the markets like gridlock in Congress. But the market has rallied no matter which political party prevails, even when the party in power loses control. In the 200 days after a midterm election where political power changed hands, the S&P's average return was about equal to the return the index posted during the 17 midterm elections as a whole.

happywacom

thanks, i saw a similar article in marketwatch