Politics and Stocks: Post-Midterm Returns

Written by: Global Thought Leadership | January 11, 2019

Chart Courtesy of ClearBridge Investments.  Source: FactSet. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment..

 

The Bottom Line

  • Politics can exert a significant short-term impact on stock prices.  But what do longer-term data say about the relationship as we enter 2019 – the year after a U.S. mid-term election?
  • ClearBridge Investments notes that going back to 1950, with the S&P 500 up an average of 15.3% in the 12 months following midterms.
  • What’s more, the economy has not seen the start of a recession during the third year of a presidential term in the modern era.  This second result may be tied to fiscal spending, which tends to be strongest during the middle of the four-year presidential election cycle.
  • For example, consumers will likely see a $60 billion boost in spending potential in 2019 from tax refunds that reflect the reduced tax rates from the late 2017 tax reform. And while the levers of government are now split between political parties, some speculate that additional stimulus could emerge from an issue that has appeal to both camps– increased spending on infrastructure.
  • While markets sometimes confound reasonable assumptions and projections, there may be reason to believe that the current worst-case assumptions about the immediate future might not come to pass.
  • For more on the issues and forces acting on the year ahead, read “Market Outlook 2019: Shifting Signals” for the views of Legg Mason’s nine diverse investment managers.

All data Source: FactSet and ClearBridge Investments, unless otherwise noted..

Definition:

The S&P 500 Index is an unmanaged index of 500 stocks that is generally representative of the performance of larger companies in the U.S.

 

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