Typical September and Midterm Election Year?
I recently had a client tell me that all I needed to say in my next market update was, “the market sucks,” and leave it at that. Better words cannot be spoken about stocks in the past month.
Since Fed Chair Powell’s comments in Jackson Hole in late August, until the Fed rate rise of 0.75% on September 21, the market (S&P 500) has been down almost 10%. High inflation in mid-September added to the turmoil, largely due to rising rent, food, new auto, and medical care costs—even though energy costs have declined.
September is historically the worst month for the stock market. Midterm election years are not typically great stock market years. The average annual return of the S&P 500 in midterm years is nearly 8% lower than in other years. As Charles Schwab recently noted, in 17 of 19 midterm election years since 1946, the market performed better in the six months following an election than it did in the six months leading up to it. Let’s hope that is the case now!
The best news may be that the market historically has a much higher return than average for the next 12 months after a midterm election. Since 1962, there has NEVER been a negative S&P 500 return for the 12 months after a midterm election.
I continue to believe we are in an unprecedented time. I do not recall a period when the Fed was doing whatever it could to slow the economy and rein in inflation, yet elected government officials continued to flood the system with additional cash ($737 billion Inflation Reduction Act and $280 billion CHIPS bill). The real question is whether continued strong employment, personal spending, and these government funds can help keep the economy from entering a hard recession.
As you know, we have been in the camp that we are already in a slight recession. We believe it will worsen once the government spending slows and we begin to feel the full effect of higher interest rates.
As usual, we include our strategies for getting through these tough times:
Short-term treasuries and investment grade corporate bonds have yielded 4 – 4.5% this past week, the highest in many years, so there is no need to hold excess cash.
We continue to feel a below-normal allocation to stocks is appropriate for the time being.
As we have said for some time, have an allocation to energy and other commodity-related stocks and ETFs.
Any stock or ETF buying should focus on those paying higher dividends.
Continue to avoid tech and growth sectors when you can.
We agree with the article here and would wait on a VIX (volatility index) measure of 40 to begin any additional stock-buying and wait until the November elections are over.
Please reach out to us if you have any questions about positioning within your personal portfolio.
Nate Lovelle, CFA
Director – Portfolio Management
Council Oak Wealth Advisors
918-984-9102 Direct
918-779-4022 Fax
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