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NOV
26
November Commentary: The Result of the Mid-Term Elections
Now that the midterm elections are safely behind us, a lot of people are wondering how politics will impact their investment returns. The conventional wisdom is that divided government—where one party holds the White House while the other controls the House, the Senate or both—is good for the markets. 

And while we recognize that when it comes to investment returns, there is never a magic formula, some of the statistics about the impact of mid-term elections and a divided White House are very interesting. For example, statistics tell us that the markets seem to like midterm elections regardless of who wins. If you look at the research done by the likes of Bloomberg and the BMO Capital Markets Investment Strategy Group, you will see that since the end of World War II, the S&P 500 has seen gains in each of the six-month periods following a mid-term election with an average—an AVERAGE—of 16% gain. And if you go a little further back, the Dow Jones Industrial Average has jumped 8.5% in the 90 trading days following the midterms, versus just 3.6% in non-midterm-election years, during a period of 84 years, from 1922 – 2006. Staggering!

There is more good news. It turns out that in terms of market impact, the election results we saw this year are the winning combination. According to a study done by S&P Capital IQ, since 1945, a Republican-controlled House and Senate, coupled with a Democratic President, have brought an average annual return of 15.1%. This is the best combination during that period, and second best if you go all the way back to 1901.

So this is all good news, right? Not so fast. The trend of how the markets perform when one party controls Washington versus when there is partial or total division is equally as telling. In the same period as above (since 1945), stocks climbed an average of 10.7% annually when one party controlled the White House and both chambers of the Senate, compared to just 7.4% when there is either partial or total gridlock in Washington. The silver lining here is that during the same period, markets have performed better when both chambers of Congress are unified than when they are divided, as they will remain until the end of 2014.

Is there a conclusion to be drawn here? Yes. That the statistics are very interesting and that trends do exist, but they are not necessarily indicative of what will happen over the next two years until the next Presidential election. And while many of us, regardless of political affiliation, are growing increasingly frustrated with what feels like a never-ending choke hold happening in Washington, this division is not all bad. At least not for the immediate future of U.S. markets, if history tells us anything.

One last statistic that might trump them all: it appears that the S&P 500 performs some two or three times better when Congress is NOT in session, giving some credence to a famous quote from an 1866 court decision that "no one's life, liberty or property are safe while the legislature is in session".

If you would like to discuss any of the topics discussed in this article, please contact Ari Teplitz at (732) 591-0909 or ateplitz@teplitzfinancial.com.



Sources
http://www.irishtimes.com/business/personal-finance/us-elections-entwined-with-stock-market-fortunes-1.1986324?page=1
http://www.ocregister.com/articles/singer-17484-percent-washington.html

http://www.slate.com/articles/business/moneybox/2010/11/electiondayprediction_buy.html
http://www.marketwatch.com/story/a-breakdown-of-how-the-market-performs-after-midterm-elections-2014-11-03



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 Securities offered through American Portfolios Financial Services, Inc. Member FINRA/SIPC (FINRA/SIPC). American Portfolios Financial Services, Inc. and American Portfolios Advisors, Inc. are not affiliated with any other named business entities mentioned.

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