Touching stock market chart

During the months of September and October, some news media covering the financial markets attempted to explain performance of stock markets by asserting prices were reflecting a “typical election pattern: Though the exact phrasing may differ, one often cited explanation for near-term equity volatility by the media was that daily moves in stocks could be attributed to hope or anxiety over the results of the forthcoming election, especially if a presidential tweet recently occurred.

This Market Brief reviews activity of stock markets for the 17 mid-term election years since 1950 to see if just such an effect exists. Our analysis only focuses on this period to avoid any lingering impact from either World War II or the Great Depression that could overshadow these earlier years.

Truman was elected president in 1948, and his mid-term election occurred in 1950. Every four years after 1950 are mid-term election years. The presidents during those mid-term years are: Eisenhower (1954, 1958), Kennedy (1962), Johnson (1966), Nixon (1970, 1974). Carter (1978), Reagan (1982, 1986), Bush (1990), Clinton (1994, 1998), Bush (2002, 2006), Obama (2010, 2014) and Trump (2018). Our analysis begins by observing the path of stock prices for each of the 68 calendar years since 1950 and compares them to the 17 mid-term years to see if they are similar. Shorter time periods are also analyzed similarly.

Using charts to depict the pattern of stock prices over a year can provide high level observations. For consistency and comparability, each year is scaled to 100. We show the maximum, minimum and average to illustrate the range of performance outcomes.

Mid-terms versus all other years

In the chart labeled “S&P 500 Annual Growth of $100,” note the wide dispersion of calendar year stock returns. A conclusion that can be drawn is that there is a wide range of outcomes over the last 68 years. Let’s add a little math and statistics for further understanding. The average annual price change is 9.1%, with a standard deviation of 16.4%. Excluding dividends, 95% of the time the annual stock performance has been between approximately 41.8% and -23.6%.

The 2018 time period stands out as one of those rare years that stocks are little changed through October. Only seven of the 68 full calendar years since 1950 have experienced stocks changing between -2.5% and +2.5%, indicating that roughly one out of every ten years is flat.

Read full November Market Review.

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Investment products are Not insured by the FDIC or any government agency, Not a deposit, Not a bank guarantee, subject to risks and may lose value. Market Review is published by MainStreet Advisors of Chicago, an investment sub-advisor partner.