Alessio Rastani and Charlie Burton discuss post-midterm stock market probabilities
Trader and analyst Charlie Burton joins Alessio Rastani to discuss historical S&P 500 performance following US midterm elections.
Summary
Alessio Rastani and Charlie Burton examine a historical data set showing S&P 500 performance in the six months following every US midterm election since 1950. The central finding is that across all 19 midterm cycles in that period, the S&P 500 has been higher six months later — a 100% win rate. The average gain across those instances was 14%, though some cycles produced returns as low as 3%. Both presenters acknowledge this is a probabilistic argument, not a guarantee, but conclude that the data supports a bullish outlook for stocks into the following spring.
Key Takeaways
FULL TRANSCRIPT
Post-Midterm S&P 500 Historical Performance
Alessio Rastani: Hello and welcome. We're joined here by professional trader Charlie Burton. In this video, we're going to talk about stock markets. We got the election out of the way, and we've seen quite a strong bounce in the stock market again from that pullback that we got. Charlie has some interesting charts and data he wants to share with us. Charlie, let's go to your information. What is this chart that you have? We had the midterm election out of the way — what does it say to us right now?
Charlie Burton: It tells us that the probabilities, the odds are on the side of the stock market actually going up over the next six months. Going back to 1950, as you can see on the chart here, the S&P six months after each midterm — going way back to the 1950s — has always been higher six months later. There have been 19 midterms since 1950, and on every occasion six months later the S&P has been higher. Now, it doesn't mean to say that this time won't be different, but history has said over the last 70 years that 100% of the time the stock market has been higher post the midterms.
Alessio Rastani: So if we think about six months later, I guess that means by April — in the spring of this year — the market could still be higher. That means there's potential for the stock market to make new highs. In other words, this data shows a 100% win rate for the S&P over the six-month period after the midterm elections. As you said, it's not a guarantee, it's not a certainty, but the probabilities seem to be in favour of the stock market going higher — the market pushing to new highs in the next several months, if not in the near term, at least by the end of the year going into next year. Is that correct, Charlie?
Charlie Burton: Yeah, absolutely. The average return, as you can see there, was 14%. Not every single time — there were a couple of instances where the return was only around 3% over that six-month period — but the average return was 14%. So we'll see what happens this time. Nothing is guaranteed in the markets, but we just trade and use probabilities and data to support our various arguments. And at the moment, this would support higher stock prices on average, not lower.