With Democrats in charge of the house, we will have a lot of gridlock and markets love gridlock for it means the odds of an unpleasant surprise coming out of Congress is low. Secondly, the markets have generally performed very well in the third year of the presidential term and by a long shot. Take a look at the chart below
The second year of a presidential cycle is almost always the worst, and that is where we currently are. Now let’s examine one other very interesting fact. Since 1946, we have had 18 midterm elections, and in every instance, stocks were trading higher 12 months later. Think about that for a second that is a perfect score, and this has taken place under every political combination possible over the past 72 years. Stocks have risen an average of 17% in the year after midterms, and if one measures the gains from low to high, the results are even more impressive; stocks averaged 32% over the next 12 months. Therefore the 3rd year of the presidential cycle which we are very close to entering is the strongest year for stocks.