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Midterm Year Volatility Arrives Early as Fed Turns to Fighting Inflation

Midterm election years are usually a volatile year for stocks as Republicans and Democrats vie for control for Congress, especially under new presidents. Incumbent presidents usually lose seats in the House of Representatives (see 2022 Stock Trader’s Almanac page 28) and with the razor thin margins Democrats have in both the House and Senate they could easily give up control of Congress in the midterms.

The chart here of the “S&P 500 Midterm Election Year Seasonal Pattern Since 1946” does not paint a rosy picture for 2022. Along with the pattern for all years and all midterm years since WWII we have overlaid the patterns for 1st term midterm years, Democratic president midterm years as well as the 2nd year of new Democratic presidents.

All midterm years average an S&P 500 gain of about 6%, Democratic president midterm years average about 4%, but 1st term midterm years average a loss of -0.6% and the 2nd year of new democratic presidents have been down -2.3% on average. All four tend to hit an early year high in April at the end of the Best Six Months with a low point during the Worst Six Months May-October.

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