Nov 062014
 

How Midterm Elections Affect the Stock Market

Imagine if you knew an investment strategy where the historical odds are almost 100% in your favor! 😀 Well here’s how. 🙂 Since 1942 there has been 18 midterm elections, not counting the one that just happened earlier this week. Every single time the S&P 500 has gone up after one year following each of those elections. The average stock market gain over the 12 month period following all 18 elections was 16%. 🙂 If we only look at what happened after just 6 months following the midterm elections, once again 18 out of 18 times the S&P 500 rallied, and on average by 15%. Chart below for details. (source)

14-11-midterm-election-stock-performance

As we can see, the chart shows the percentage change of the stock market index after 3 months, 6 months, and 12 months following each midterm election. The only negative change is after the 3 month period following the 2002 midterm when the S&P 500 dropped 8.7% as shown in brackets. Every other time the stock market has gone up. 🙂 This indicator has been very consistent because regardless of which party wins in the house or the senate the results of a midterm election adds certainty to the political landscape. And certainty gives confidence to the financial markets. 🙂

The rally after a midterm election is probably one of the most certain, long term technical indicators ever documented with nearly a perfect track record of being right every time. We’d have to venture back to the great depression era for this indicator to not deliver positive results.

This appears to be a great opportunity that only comes once every four years so I decided to try my luck. Earlier this morning I invested $1,110 into the stock market index. 🙂 The plan here is simple. Wait 6 to 12 months and then sell it for a profit. 😀 If this strategy would have worked in the past 18 out of 18 times, then I’m betting my money that it will also work this 19th time. 😉 Normally I’d use more money on an investment with such great odds. But since I can’t use leverage to buy new investments until next year I’m limited by my cash savings at the moment, lol.

14-11-midterm-election-buy-voo-swing-trade

As usual I’m not giving out investment advice or stock tips. I just want to point out the compelling historical data. 🙂 Personally I bought 6 units of the Vanguard S&P 500 ETF (symbol: VOO) at $185 each. I chose this fund because of the low 0.05% MER and high trading volume. But other index funds to consider are SPY, and VTI.

Possible risk: A small chance the world could enter into a depression, or for some other reason the stock market could plummet in the short to medium term and I could lose up to 50% of my investment.

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Random Useless Fact:
An 11 year old cat named Banye has a black patch of fur on his chin. From a distance this makes him look like he’s in a perpetual state of surprise.

14-11-midterm-Banye-british-shorthair-meow-surprised

 

 

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10 Comments on "Midterm Election Swing Trade"

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Asset Grinder
Guest

Loved the pop the tsx gained the day after elections. Been beaten up quite a bit. Time for a rebound but oil holding it down.

Finance Journey
Guest

You are testing the history. It is index not an individual stock, thus, you won’t lose your money even the luck is not in your side.

I made a similar attempt 18 months ago and bought a TD eSeries (U.S stocks) for $225. Today it is worth $334 – impressive 44% gain. I am planning to hold it forever.

Good luck!

Phil
Guest

This would be considered market timing L, and there are a lot of investors out there that believe timing the market cannot be relied upon. That said there are lots of investors out there that have a hard time making money at this investing thing too… hummmm probability and statistics from my experience are a good way to support sound research… 100% you say? Knowledge is power my friend and you’ve been proving that. – Cheers.

Tawcan
Guest

Hmm that’s an interesting stat about midterm election swing. But statistics are just stats… they can change all of a sudden, there’s no guarantee.

Kapitalust
Guest
Kapitalust

I wonder if this is just a case of 18 heads being flipped 18 times in a row – a mere statistical aberration?? 😉

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