Don’t Count on the Usual Post-Midterm Stock Rally
Too much is working against equities to keep alive one of the most remarkable streaks in markets.
Corporate earnings and the Fed, not Congress, will determine the direction of equities.
Photographer: Michael Nagle/Bloomberg
Since World War II, the US stock market has always gained in the year after midterm elections, but there are plenty of reasons to think the streak is about to end.
Consider the flimsy attempts to explain what may otherwise be a coincidence. One leading explanation is that midterm elections generally lead investors to anticipate the arrival of a new legislature with a potentially stimulative fiscal agenda. But that’s true only occasionally, and it almost certainly won’t be the case this time around. Here are fiscal deficits as a percent of nominal gross domestic product in the two years after midterms; there clearly isn’t much of a pattern: