Yesterday’s surge of the S&P 500 and the Dow was viewed as one of the best post-midterm recoveries since 1982. This trend has been observed for the past 36 years wherein the market jumps following a midterm election.
The outlook was not good in the days preceding the results, with many analysts predicting a slump should the Democrats take the House. Others expected a full on crash were they to take the Senate. In light of the new, bipartisan Congress, equities leveled out and shareholders saw a good time to dive back in to the market.
And while the mid-term elections certainly contributed to the recent surge, the majority of the credit goes to President Trump, who’s words gave several major indexes the lift they needed. In a world of ‘covfefe’ you might be wondering what on earth our president said this time. It turns out he is willing to support the Democratic party on many policies, fostering good feelings between the parties and clearing the path for a truly bipartisan government.
In addition, he revoked Jim Acosta, the CNN White House Correspondent’s press pass after the journalist accosted an intern. As far as days go, this was certainly one of Trump’s best.
There were several companies who managed to have an even better Wednesday than the President as their daily gains surpassed all others.
Rounding the day out 545 points above the previous day, The Dow’s success could largely be attributed to Apple’s resounding success that same day.
Another winner Wednesday was UnitedHealth (NYSE:UNH), which soared upon the opening of the market, closing with a 4.21% gain.
The post-midterms allowed for a sigh of relief from the bulls – many of whom anxiously await the market’s seemingly inevitable fall, despite Trump’s stock motivating words.
The S&P averaged about 0.7% in gains in the day immediately following the elections, a number that seems small in comparison to Thursday’s gains.
Looking at the cold hard numbers, one can’t deny that the good bipartisan feelings that the President presented at a timely press conference gave the market a much needed boost.
"Hopefully we can all work together next year to continue delivering for the American people, including on economic growth, infrastructure, trade, lowering the cost of prescription drugs," President Trump said, "the Democrats will come to us with a plan for infrastructure, a plan for health care, a plan for whatever they're looking at and we'll negotiate."
Midterm stock recoveries are as much an American tradition as fourth of July fireworks or apple pie. Historical data would suggest that we can look forward to a slight recovery of the market which is easy to get excited about and the bulls are rearing to go.
2018’s midterms are unlike the traditional recovery, not just because of the political climate, but also because the Fed’s interest hike down the road in December.
The Fed Chairman, Jerome Powell, is keen on keeping to schedule with his proposed rate increase and, based on the market’s reaction at getting the news this past October, the initiation of such a rate increase could cause things to crash. What’s worse is that the over-eager investors who dove back in post-midterms may exacerbate the drop.
Am I saying that a crash is inevitable? No. And I wouldn’t go so far as to say a long-term downtrend is on the horizon. It’s simply too early to make those sort of predictions. All I ask is that you look both ways before jumping into the busy intersection that is the stock market. Investors are hoping to see inflated equities that will heal the portfolios burned in the October Effect before jumping ship.
That only spells trouble for the current, but apparently temporary stability we are seeing in the market. With such a volatile time in our economy I could hardly recommend re-entering the market at this time.