Since 1951, a Democratic president with either a Republican or a split Congress has seen an average S&P 500 Index return of over 17%, compared with an overall average of just over 12%, according to LPL strategists.
A big night for Republicans on Tuesday could fuel a short-term pop for stocks and help keep alive what’s likely to be another bear-market rally, according to a Wall Street analyst who correctly called this year’s equity selloff.
When it comes to longer-dated yields, midterm elections could “provide a potential catalyst … if the Republicans win decisive control of both the House and Senate as some polls and betting markets are suggesting,” Wilson wrote. “Because this isremains bearish, we will remain disciplined on how much leash to give it.”
A Republican takeover of at least one chamber of Congress is seen as a potential plus for long-dated Treasurys, potentially pulling down yields, which move in the opposite direction of price. That’s because Republicans would likely “throw a wrench into the aggressive fiscal spending plans the Democrats would still like to get done,” Wilson wrote.See: Breaching the U.S.
“Markets historically have done well in the year after midterms. In fact, they have been higher 18 out of 18 times in the following year dating back to 1950, with nearly identical historical returns under Democratic and Republican presidents,” wrote LPL strategists Barry Gilbert and Jeffrey Buchbinder in a Monday note .
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