Tags: mid-term | elections | stocks | Democrats

CNNMoney: Mid-Term Elections Historically Bode Ill for Stocks

By    |   Wednesday, 16 July 2014 01:33 PM

If history is any guide, the stock market may be in for a rough third quarter, thanks to the November mid-term elections.

Looking at data starting in the 1930s, Sam Stovall, chief equity strategist at S&P Capital IQ, found that the second and third quarters of a mid-term election year produce the worst six-month period for the S&P 500 in any four-year presidential term, CNNMoney reports.

To be sure, the S&P 500 broke that rule in the second quarter, returning 5.2 percent. But perhaps that just sets up the index for a bigger drop this quarter.

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The big question in this year's election is whether Republicans will wrest control of the Senate from Democrats. The Democrats now hold a 55-45 majority, including two independents who caucus with them. But the party occupies 21 of the 36 seats being contested this year.

"Mid-term elections historically have been disruptive to markets, and the possible shift in control this fall will likely make for a great deal of political fireworks," Alan Gayle, senior investment strategist at RidgeWorth Investments, tells CNNMoney.

Meanwhile, Mark Hulbert, editor of Hulbert Financial Digest, sees plenty of reasons apart from the elections why stocks should fall.

In a Wall Street Journal column, he cites six highly regarded measures of stock valuations that show the market has been overvalued for months.
  • The cyclically adjusted price-earnings ratio, which includes 10 years of earnings.
  • The dividend yield.
  • The price-sales ratio.
  • The price-book ratio.
  • The Q ratio, which represents a company's market capitalization divided by the replacement cost of its assets.
  • The price-earnings ratio based on trailing or forward 12-month earnings.
"While that doesn't mean a bear market is imminent, there is a high probability that investment returns over the next decade will be below average, according to Yale University economics professor and Nobel laureate Robert Shiller," Hulbert writes in The Journal.

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If history is any guide, the stock market may be in for a rough third quarter, thanks to the November mid-term elections.
mid-term, elections, stocks, Democrats
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2014-33-16
Wednesday, 16 July 2014 01:33 PM
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