Your stock portfolio has been growing steadily, thanks to the recent “midterm miracle.” But now it’s time to add some “gridlock gravy” to top it off.
Historically, the nine months before midterm elections have been the most profitable for stocks since 1925. And despite the prevalent doom-and-gloom predictions of inflation, rate hikes, and recession fears, the S&P 500 saw impressive gains of 25.7% through June 30, surpassing the historical average and ending the bear market of 2022.
What can we expect now? More bearish hand-wringing and more gains. While stocks usually rise less strongly in the back half of presidents’ third years, they remain positive in 75% of cases. The last negative full third year was in 1939 during WWII.
Despite the ongoing conflict in Ukraine, regional wars tend to have a short-lived impact on stocks. Only world wars have a significant and prolonged effect.
At home, as fears of a recession subside, concerns about persistent inflation and potential tax hikes may arise. However, it’s important to note that inflation comes from excess money creation, not from economic strength or government spending. Inflation has been on the decline, and the 2024 election is unlikely to pose a significant threat to the market.
The key to a successful second half of any administration lies in gridlock. After the midterms, political uncertainty surrounding new legislation usually fades. While political squawking remains, major bills tend to go nowhere. Presidents focus on re-election and use unaddressed issues as campaign promises.
Additionally, the 2024 Senate election appears to be tilted toward Republicans, which could further boost business enthusiasm. Commercial real estate concerns, such as working from home and excess capacity, may worry Main Street but have little impact on the stock market.
As we navigate through the second half of this administration, a shift toward traditional industrial and economically sensitive stocks is expected. The wall of worry that accompanies bull markets will persist, but with inflation under control and slow growth defying recession fears, gridlock will help keep us in positive territory well into 2024.
In conclusion, take these insights to heart as you discuss the future of the market with others, and be sure to make informed decisions when it comes to your investments.