History doesn’t always repeat itself. That’s the lesson to take from a new report that shows 2007 is on track to be the first time stocks haven’t rallied substantially following a midterm election.
Joseph Quinlan of Bank of America compiled data showing that since 1946, the S&P has posted average total market returns of 23% one year following a mid-term election. This year appears to be bucking the trend. On average in the ninth months following a midterm election, the S&P is 23% higher, but in the current year’s comparable cycle the index is only 7.1% higher. Indeed, the S&P has lagged the historical averages in every period since the November election.
In order to reach the historical average for the year, the S&P would have to surge 15% over the next three months. “That’s not impossible, but improbable,” says Quinlan.
“Uncertainty and volatility are likely to remain market staples over the near-term, fed and fueled by rampant fears about widening credit spreads, escalating credit defaults and rising concerns over global liquidity conditions,” he says. “It’s going to be tough for the S&P to match the returns of previous cycles.” –Phil Izzo
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