After the Vote: What History Says Comes Next
Hoxton Blog • After the Vote: What History Says Comes Next
The US midterm elections are now less than two weeks away. On 3 November, American voters will choose a new Congress, and the closer we get, the louder the commentary becomes.
Earlier this month we looked at how the US stock market has tended to behave in the final quarter of a midterm year. This week we want to look a little further ahead, at what has typically happened in the months after the votes are counted, and why we think that matters far more than any prediction about who will win.
What History Shows After the Vote
The chart below measures the return of the S&P 500, an index of 500 of the largest listed US companies, from the close on each midterm election day to 30 June of the following year, a period of roughly eight months. It covers every midterm election since 1950, 19 in total, from November 1950 through to November 2022.
Source: Exhibit A, FactSet Research Systems Inc., Standard & Poor’s. Midterm election years since 1950. Latest: 30 June 2023. Past performance is not indicative of future results.
The result is striking. In all 19 cases, the S&P 500 was higher by the following June. The average gain was 15.5%, and in 13 of the 19 periods the market rose by more than 10%. The strongest result came after the 1954 midterms, with a gain of 29.1%. The weakest followed the 2014 vote, and even then the market finished 2.5% higher.
Just as importantly, this has held regardless of who won. The 19 elections in the chart took place under presidents of both parties and produced every kind of result, from comfortable majorities for one side to a Congress split between the two. The pattern has not depended on any particular outcome.
Why the Months After a Midterm Have Tended to Be Strong
As we explained earlier this month, much of it comes down to uncertainty. Before the vote, investors face open questions about which party will control Congress and what that could mean for taxes, spending and regulation. Once the result is known, that uncertainty lifts, whatever the outcome, and businesses and investors can plan around it.
There is a second reason too. Since 1950, the president’s party has lost seats in the House of Representatives in all but two midterm elections. That tends to leave power more evenly balanced in Washington and makes sweeping changes harder to push through. For markets, fewer sudden shifts in policy can be a welcome form of stability.
An Average, Not a Promise
A perfect record across 19 elections is encouraging, but it is still only 19 observations, and it is not a guarantee. The range of outcomes has been wide, from a gain of just 2.5% to almost 30%, and the path along the way has not always been smooth.
2018 is a good example. In the weeks after that year’s midterms, the US market fell by around 15%, as worries about rising interest rates and trade tensions took hold, reaching its low on Christmas Eve. An investor watching the headlines that December could easily have concluded that the pattern had broken. Yet by the end of June 2019, the market had recovered and stood 6.8% above its level on election day.
So we would not suggest making investment decisions based on this pattern, or trying to time the market around the vote. History offers helpful perspective, not a forecast.
The Principle Underneath: Look Past the Noise
Between now and the vote, and in the days after the result, there will be no shortage of confident views on what it all means, and some of them will sound alarming. History suggests that the outcome of a single election has mattered far less to long-term investors than it feels at the time. What ultimately drives markets is the work of thousands of businesses, serving their customers and growing their profits, through governments of every colour.
This is why we build portfolios the way we do for our clients at Hoxton: spread across many companies, many industries and many countries, ready for a range of outcomes rather than positioned around a guess about who will win. We do not need to know the result, nobody does, and a well-built portfolio does not depend on it.
And a Word on Staying Invested
The gains in this chart went to investors who were in the market on election day and stayed there. Those who sold beforehand out of worry, or waited on the sidelines for things to feel calmer, would often have missed some or all of the rise that followed. With the cost of living still rising, money held in cash also slowly loses its buying power. Being invested when the good periods arrive matters far more than trying to pick the right moment.
Our Message This Week
With the US midterms now just days away, it is natural to wonder what the result might mean for your investments. History offers some reassurance: after every one of the 19 midterm elections since 1950, the S&P 500 was higher by the following June, with an average gain of 15.5%. That is encouraging, but it is a historical pattern, not a promise.
The lesson, as ever, is not to let the headlines drive your decisions. You do not need to predict who will win, or how markets will react in the days that follow. You simply need to stay diversified, stay invested, and let time and the long-term growth of businesses work quietly in your favour. As always, if you would like to talk through what any of this means for your own plan, we are here to help.
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