Anyone looking for a rally in U.S. stocks may not have to wait much longer, according to Jeffrey Kleintop, chief market strategist at LPL Financial.
As the CHART OF THE DAY illustrates, share prices tend to rise in the fourth quarter when a midterm congressional election takes place. The track record is one of half a dozen potential catalysts for stocks to rise before year-end, Kleintop wrote two days ago in a report. This year’s vote is Nov. 2.
The Standard & Poor’s 500 Index has climbed in 17 of the last 20 midterm-election quarters, or 85 percent of the time. The percentage exceeds a 61 percent reading for all quarters since 1928, when index data begins.
“The market’s reaction to midterm elections, as uncertainty fades, has almost always been positive,” Kleintop wrote. Since 1930, the S&P 500 has averaged a 6.3 percent gain in quarters when the votes were held.
Possible triggers for stocks to rise also include Federal Reserve efforts to stimulate the economy, an “October surprise” from the federal government that appeases voters, and Republican gains in the election that may slow down legislative action, the report said. An extension of President George W. Bush’s tax cuts and signs of an economic rebound would help, Kleintop wrote.
“Unfortunately, all of these potential catalysts are a month or more away,” he wrote, and there’s a “significant” risk that stocks may retreat to this year’s lows before then. The S&P 500 hit bottom on July 2 at 1,022.58, 2.5 percent lower than yesterday’s close of 1,049.33.
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