2022 is a mid-term election year. So, what does that mean for the stock market?
In two words: weakness + volatility.
Since WWII, the market has had some of it’s weakest years on record during a mid-term election year.
In fact, if we look at all mid-term election years since 1946 the S&P 500’s performance during those years has averaged a gain of 5.03% which is approximately half of the return for all non-mid-term years which have seen an average annual return of 10.26%.
Not only have mid-term election years seen weaker returns than all other years, but these years have also been more volatile with larger drawdowns.
The median maximum drawdown from a peak during mid-term election years since 1946 has been 17%. For all years since 1946 the median drawdown is 11%.
Mid-term election years are known for being volatile and this year is no exception. Don’t be surprised to see a continuation of this trend as we continue to navigate an environment where inflation is at 7%+ and the Fed is initiating a rate-hiking cycle.
Related: President Biden’s approval ratings have seen a huge swing from a year ago plummeting from 50%+ of Americans approving to around 41% today. The betting markets are forecasting that Republicans will take control of both the House and the Senate in this year’s elections. The good news is that historically speaking gridlock has been better for the stock market than full Democrat control (President+House+Senate).
In the end politics matter much less than you think they would when it comes to investing. The stock market has seen forward progress over the long-term irregardless of who has the power in Washington. Although mid-term election years typically bring some uncertainty and heightened market volatility, the market is ultimately resilient.
Nobody knows exactly what the rest of the year will look like for the stock market. The only thing we now know for sure is that the volatility we are currently seeing is right in line with a typical mid-term election year. Looking beyond 2022 the future is bright with an abundance of opportunities for the great companies of America.
Source: The Bespoke Report, Bespoke Investment Group, 1/21/22.