Announcer:
4 Your Money is brought to you by NelsonCorp Wealth Management.
Brandy Auterson-Hurst:
It’s now time for 4 Your Money. We are joined by Nate Kreinbrink, financial planner at NelsonCorp Wealth Management. Welcome back, Nate.
Nate Kreinbrink:
Thanks again for having me.
Brandy Auterson-Hurst:
So, we’re about seven weeks away from the midterm elections, and a lot of people get nervous about the stock market around election time. What does history usually tell us?
Nate Kreinbrink:
Well, elections always seem to bring some level of anxiety, but to be fair, the midterm election year has historically been the choppiest of the four-year presidential cycle. If we go back to 1950, the S&P 500 has only averaged about 4.5% During midterm election years compared to roughly 11% during the others. And of those midterm election years, half the time it was actually negative. What’s more interesting though is what happens following the election, and this is the chart that I brought today. So, each bar on this chart is the S&P 500’s return, and the 12 months after a midterm election going back to 1950. There’s 19 of them and every single one of them is positive.
There has not been one losing 12 month stretch after a midterm with the average gain at about 18%. Now, the biggest part of this reason is simply that the uncertainty gets resolved. Once investors know what Washington is going to look like for the next two years, it can get back to focusing on earnings and the economy.
Brandy Auterson-Hurst:
Okay. So, does that mean investors should be buying ahead of the election?
Nate Kreinbrink:
Well, I’d be cautious to look at any pattern like this as a guarantee. 19 elections is actually a relatively small sample size, and every single one of them has actually had its own backstory. The bigger lesson though is that election nerves alone is not a good reason to get out of the market. When we make these risk-based decisions, we need to look at the evidence, not necessarily the election calendar.
Brandy Auterson-Hurst:
All right, Nate, thanks for your insight today. If you missed any of our discussion, we’ll make it available for you on ourquadcities.com.
Past performance is no guarantee of future results. Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal.
Indices mentioned are unmanaged and cannot be invested into directly.
This video includes a paid appearance.