Institutional Research:
1. Goldman Sachs: Research suggests that market volatility often subsides significantly after elections, and the stock market may rebound as political uncertainty fades. Their baseline scenario is a divided government, limited major legislative changes, and a renewed focus on economic fundamentals.
2. JPMorgan Chase: Statistics show that since 1950, the S&P 500 has achieved positive returns in the 12 months following each midterm election, with an average increase of approximately 15%; the average return in the fourth quarter of midterm election years is 6.6%. The firm also cautions that future returns still depend on earnings, economic growth, AI investment, and Federal Reserve policy.
3. Morgan Stanley: Historically, in scenarios where a Republican president is paired with a divided Congress, the S&P 500 has seen an average increase of approximately 23% in the year following a midterm election; in scenarios where a Republican president is paired with a Democratic-controlled Congress, the average increase is approximately 15%. However, it emphasizes that this does not necessarily mean a divided Congress is beneficial to the market; the actual changes in fiscal, tariff, regulatory, and AI investment policies still need to be assessed. 4. BlackRock: Statistics show that since 1970, the S&P 500's average return in the six months following a midterm election is 14.1%, higher than the 5.7% in non-midterm election years. Research also found that deciding whether to hold stocks based on political party affiliation may result in significantly weaker long-term performance than consistently remaining in the market.
Why do US stocks typically perform better after elections?
1. Reduced policy uncertainty: After the election results are determined, investors can more clearly assess the possible paths of taxation, regulation, fiscal spending, and congressional legislation. Even if the outcome results in a divided Congress, policy boundaries are easier to evaluate. Goldman Sachs Asset Management's analysis on October 9th emphasized that the market often reprices itself based on economic fundamentals after elections.
2. Pre-election pessimism may already be reflected in prices: If investors previously reduced their stock positions due to policy risks, the market may see a rebound in risk appetite if the actual result is not as bad as expected. This is the so-called "shoe dropping" rally. However, if the result is far worse than market expectations, or accompanied by a severe fiscal impasse, the market may initially fall before rising, or even remain under pressure after the election.
3. Macroeconomic factors and earnings are often more important than party affiliation: JPMorgan Chase lists future earnings growth, economic resilience, investment in AI infrastructure, and Federal Reserve policy as key factors supporting the performance of risk assets. In other words, even though historically post-election gains have been generally strong, these patterns may not hold true if oil prices surge, inflation accelerates again, or earnings expectations are revised downwards.
