Post-Midterm Elections: Market Expectations Timeline

November 9th, 2018 by Matt Large

The midterm elections are over. The Democratic Party took over majority control in the House while the Republican Party strengthened its majority in the Senate. For the most part, these were the expected outcomes. Now that we have these results, what will it mean for the market and what we can we expect the rest of the year and moving into 2019?

Right Now –

Immediately following the election results, Wednesday’s market turned up over 500 points on the Dow Jones Industrial Average. However, Thursday was flat and today (Friday) brought us almost back to where we were on Tuesday afternoon. Now that the midterm political campaigning is over, the President will turn his attention back to his policies. Additionally, the Federal Reserve kept interest rates the same this week, as expected, while pointing to a December rate hike, as expected.

Rest of 2018 –

November and December are traditionally bearish months for the market. Many investment managers are selling to lock in profits from the year or to harvest tax losses and lower their clients’ tax burden. On top of a bearish atmosphere, the markets will possibly continue to react with volatility as more news about tariffs, foreign relations, and Trump Administration maneuvers hit the press. Also, if we do not get the 0.25% rate hike in December, the markets might react with even more volatility. However, most likely, we will see the Fed raise rates and the controlled market tightening will continue.

2019 –

After a small pullback, and possibly volatile end to the year, history suggests a quick turnaround and positive outlook for 2019. We are currently in a nine year bull-run, which is uncharted territory for the stock market, so any historical data will have to be analyzed with that in mind. That being said, in the past, midterm elections have typically been followed by good equity returns. In fact, the S&P 500 has returned positive every year following a midterm election since 1950, averaging a return of 15.3% over that period[1]. This combined with continuing economic growth bodes well for our bull run to continue.

Action –

At Anchor Bay Capital, we execute tax loss harvesting throughout the year and will be looking to lower tax burdens even more these last few months. In early January, we will review our equity allocations and look to buy securities at a discount that may have lost ground at the end of the year. On the fixed income side, we are investing in short-term treasuries and money markets to take advantage of raising interest rates on down the road.



Have a Happy Thanksgiving!




[1] Sheaff Brock Institutional Group, 2018 Midterm Elections