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Stocks typically pop after midterm elections

S&P 500 typically rises once election uncertainty fades

S&P Capital IQ


The stock market is nearing a historically strong period: the six months after mid-term elections.

Sam Stovall, equity strategist at S&P Capital IQ, has crunched the numbers, going back to 1944.

He found the S&P 500 SPX, -0.16% has gained 15.3% on average in November through April in Year 3 of a presidential term — or put another way, in the half year after a mid-term election. This year, the voting will be on Nov. 4.

Stovall as always cautions that history offers a guide, not a guarantee, yet he also sees a reason for this pattern.

“Wall Street does not like uncertainty, and mid-term elections offer uncertainty, just as presidential elections do, but without the stimulus to try to get the party reelected,” he told MarketWatch in an interview.

“But once that uncertainty has run its course, then the November through April period’s average increase is 15.3%, and its batting average — the frequency of a rise — is 94%. That’s pretty impressive.”

Stovall’s research also suggests ways to play this seasonally strong period, beyond just buying something like the SPDR S&P 500 ETF SPY, -0.12% or the iShares Core S&P 500 ETF IVV, -0.13%

S&P 500-based funds that are tilted toward growth, value or are equal-weighted, rather than cap-weighted, have historically outperformed in November through April, as shown in the chart below.

“You would have been able to add some octane to this November through April period,” Stovall said.

S&P Capital IQ

Related ETFs are the Guggenheim S&P 500 Pure Growth ETF RPG, -0.64% the Guggenheim S&P 500 Pure Value ETF RPV, -0.19% and the Guggenheim S&P 500 Equal Weight ETF RSP, -0.16%

These funds are part of the smart beta trend, an area of index investing that seeks to enhance returns or minimize risk relative to conventional market cap-weighted benchmarks.

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