Midterm Elections’ Stock Market Surge: An Unintentional Gift from US Politicians

Abstract

This article provides evidence for the existence of a midterm election effect. By examining the quarterly total returns on the S&P 500 Index between 1954 and 2017, we show that, 9 times out of 10, the index has been positive in the fourth quarter of a midterm election year and the following two quarters. These returns compound to nearly 25% in those three quarters. Neither changes in the monetary nor the fiscal policies were able to explain the effect. We show that the known third year of a presidential term effect is weaker than the examined midterm election effect.

TOPICS: Mutual funds/passive investing/indexing, financial crises and financial market history, performance measurement