the China-U.S. trade war, to name a few. But it’s important to keep a few things in mind... First, none of this “news” is new. The market has known about all of these problems for some time, which means it has likely already discounted them. More important, none of these “reasons” have altered the longer-term picture to date. For now, the most reliable measures of economic and market health continue to tell us that the risks of a bear market or recession remain low today. That said, corporate and subprime consumer debt continues to balloon, and nearly half of Americans don’t have the cash for a $400 emergency. Bull or bear market, subprime borrowers and heavily leveraged corporations will have to face reality. These debts will still come due, and with them will be a wave of bankruptcies, defaults, and even more borrowing. Since 1946, there have been exactly 18 midterm elections in the United States. And according to research published in Forbes , the broad U.S. markets were higher 12 months later after every single one... and the average gain was an impressive 17%. In short, since the end of World War II, it simply hasn’t mattered which political party controlled the White House or Congress prior to the election, or which party controlled them after. Stocks moved sharply higher after every single one. But there is one potential caveat... Although Republicans have kept control Do the midterms matter?
of the Senate, Democrats have retaken the House of Representatives. Why does this matter? According to a note from Nautilus Investment Research, we’ve seen this exact scenario play out in two previous midterm elections. These were in 1910 and 1930, during the presidencies of William Taft and Herbert Hoover, respectively. And both were followed by less-than-stellar years for stocks. Following the 1910 election, stocks fell 5.5% over the next year. In 1930 – which admittedly was in the middle of the Great Depression – stocks plunged more than 40% over the next 12 months. Of course, this is an extremely limited sample size. The reality is, politics matter far less to the markets over the long run than most people think. If anything, so-called “gridlock” – when no one party holds the presidency, Senate, and the House – has often been considered a bullish rather than bearish development. It meant the government would have a more difficult time interfering in the economy. However, the market has risen significantly over the past two years. Outside of the recent trade war with China, investors have generally cheered the efforts of President Donald Trump and the Republican Congress to cut taxes and ease some of the government’s most onerous regulations. So while it wouldn’t be surprising to see the market give up some gains, history – and gridlock – may give it room to run.
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