The Globe and Mail reports in its Friday edition that an unfathomed catalyst should soon bring sweet relief to stalled markets -- November's U.S. midterm congressional elections. Guest columnist Ken Fisher writes that stocks don't actually prefer any party. Their chief political concern is big, controversial legislation. Big bills always create winners and losers. Simply put, markets prefer Washington gridlock. U.S. stocks average 6.3-per-cent gains in midterm years' fourth quarters, rising in 83.3 per cent of them.
That rally rolls on: Returns average 6.6 per cent and 5.5 per cent in the ensuing two consecutive quarters, with 87.5 per cent of each positive. Midterm magic! Hence, there has not been a negative third year of a president's term since 1939 -- and it was only down 0.9 per cent.
This midterm effect spills worldwide, including Canada. The S&P 500 and S&P/TSX composite have a 0.81 long-term correlation. This year, think globally to fully capture the effect. Energy and utilities are the only two world sectors that are up year-to-date. Could President Joe Biden's Democrats pull off a November sweep, thwarting gridlock? Maybe, but current polling makes that extraordinary midterm outcome unlikely.
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