After a volatile October month for both stocks and bonds, the capital markets are readying themselves for what could be a potential post mid-term rally that is 18-for-18 thus far. Benchmark Treasury yields responded by ticking lower across the board.
The 10-year note went down to 3.189 and the 30-year note followed, heading lower to 3.422. The two-year note ticked down to 2.907, while the five-year note edged down to 3.019.
Political analysts are expecting a split Congress post-midterm election results, which would make the House more Democratic and the Senate Republican. However, market analysts are predicting that this political divide will do little in terms of impacting the capital markets.
“I look at history, and I say, what’s happened in the past when we’ve had a Republican president and the Democrats flipped all or a part of Congress,” said Jack Hough, associate editor at Barron’s. “I look at 2006, 1986 and the answers is, a whole lot of nothing. Positive, decent returns over the next year, not much motion on Election Day. I hate to tell people, I think we imagine a bigger connection than there is. One thing that the right and the left can both agree on is they hate me when I tell them that the stock market doesn’t care about your politics.”
Peter Boockvar, chief market analyst for the Bleakley Advisory Group, echoed this sentiment.
“Regardless of who takes the House, I don’t expect any legislation of substance in the next two years that would matter for markets and the economy. The administration got what it wanted in the tax bill. Maybe most relevant in the short term, the results could determine the negotiating stance of the Administration with China in the eyes of both Trump and Xi,” wrote Boockvar.
Related: 3 ETFs to Capture Post-Midterm Election Gain
History Looking to Repeat Itself
If history repeats itself, according to Stephen McBride of the RiskHedge Report, it could bode well for stocks and in turn, three exchange-traded funds (ETFs). As McBride noted in a MarketWatch article, stock movements into the green are a perfect 18-for-18 following midterm elections–the type of sure-shot accuracy that could rival even basketball star Stephen Curry from the three-point line.
“Since 1946, there have been 18 midterm elections. Stocks were higher 12 months after every single one. Every single one,” McBride wrote. “That’s 18 for 18. Even though we’ve had every possible political combination in the past 72 years. Republican president with Democratic Congress. Democratic president with Republican Congress. Republican president and Congress. Democratic president and Congress.”
It’s not just accuracy, but also the extent of the rise as McBride noted that following midterm elections, stocks have gone up by an average of 17% and even higher from their lows–32%. McBride also alluded to the latest October sell-off as standard fare when reacting as a precursor to midterm elections.
“There’s one last important point you should know,” wrote McBride. “Leading up to midterms, U.S. stocks typically perform poorly. From January to October in midterm years, they drop an average of roughly 1%. In all other years, stocks rise roughly 7% in that time frame.”
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