Will Midterm Elections Drive Stocks Higher?

| October 1, 2010 | 0 Comments

It’s official…

Congress has adjourned early so its members can go do what they do best… campaign of course.  With about a month to go before the election, our faithful public servants are pulling out all the stops to keep their jobs.

It’s the earliest pre-midterm election recess since 1960.

Why the rush to get back to their districts?

The Democrats want to avoid making any more unpopular policy decisions before the election.  They don’t want to make the tough choices needed for our federal budget and the expiring Bush tax cuts with elections around the corner.

It’s a shameless shirking of their duty in my humble opinion.

But that’s only part of the story…

The main reason for the early recess is simple… Democrats are facing a potential rout in the election.  They want as much time as possible to convince their constituents not to kick them out on their keasters.

Check this out…

A recent USA Today/Gallup poll shows the American public is disgusted with the Democrat controlled Congress.  Just 18% approve of the job Congress is doing.

A whopping 77% disapprove.

That’s the lowest job approval score Gallup’s ever seen in a midterm election year.

What’s more, the polls show Republicans are nearly certain to take back the House and quite possibly the Senate.  Voters are fed up with the stagnating economy, the Obamacare monstrosity, and multi-trillion dollar deficits.

But I have a bigger question on my mind.  What impact will the elections have on the market?

We’ve just closed out the best September the markets have seen in 77 years.  The Dow gained 7.7% for the month.  The large cap S&P 500 index jumped 8.8%.  And the tech-heavy Nasdaq surged an amazing 12%.

A remarkable showing for a month that historically has the worst average returns.

Is this the beginning of a larger upward move?  Or is it the last gasp before a lengthy decline?

If history’s any indication, we’re in for bigger gains ahead.  According to the Wall Street Journal, “the Dow has gained an average of 17.1% in the year following a mid-term election.”

And here’s the best part…

“The odds of a selloff [are] less than one in 10.”

Dr. Ed Yardeni, the famed economist and market strategist, has also found evidence of a positive correlation between the markets and midterm elections…

In the last 19 midterm election cycles, the S&P 500 has produced gains in 18 of them.  The average return over the six months following the election is 13%, and a hefty 17% over the next twelve.

Plus, the best gains were generated in years when there is a Democratic president and a Republican congress.

If history repeats itself as it often does, we should see stocks heading significantly higher over the next year.

That means it’s time to put your helmet on and get into the game.  No more sitting on the sidelines in cash or bloated Treasury bonds.  Now’s the time to put money into good quality stocks.

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Category: Stocks

About the Author ()

Robert Morris is the editor of Penny Stock All-Stars, an investment advisory focused on discovering small-cap and micro-cap stocks that are destined to become the market’s next Blue Chips. The Wall Street veteran and small-cap stock specialist is also a regular contributor to Penny Stock Research. Every week, Robert shares his thoughts with our readers on a variety of penny stock-related topics. In addition to Penny Stock Research, Robert also writes frequently for two other free financial e-letters, ETF Trading Research and the Dynamic Wealth Report. He’s also the editor of two highly successful and popular investment advisories, Biotech SuperTrader and China Stock Insider.

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