The Midterms Are Over. History Says This Is What the Stock Market Does Next.

After the Democrats secured control of both the House and the Senate in the November midterm elections, President Trump will have a Congress controlled by the opposition party for his final two years in office. History reveals some intriguing insights into how the stock market typically behaves following midterm elections. According to data, the S&P 500 has consistently outperformed in the year following each of the 19 midterm elections since 1950, with an average gain of around 15%.

Even the most challenging period, which encompassed the 1987 crash, ended with a modest gain. However, the stock market has never dipped in value a year after a midterm election. Five presidents who served two full terms since 1950 experienced a mixed bag of results in their final two years. The S&P 500's performance during this time exhibited a positive trend in all five instances, though the final year witnessed more significant declines.

The 2000 decline occurred due to the bursting of the dot-com bubble, while the 2008 downturn transpired during the financial crisis, neither of which were directly influenced by the political landscape. Three of these presidents, namely Eisenhower, Reagan, and Bush, faced a Congress controlled by the opposing party during their last two years, similar to Trump's situation.

Over an extended timeframe, RBC data indicates that years featuring a Republican president and a Democratic Congress yielded an average annual gain of approximately 5%, the lowest among all combinations. It's important to note that this average is based on a limited number of periods, so one should not overinterpret the results.

In essence, history points towards a positive outlook for stocks in the year following a midterm. Ultimately, the market's trajectory over the subsequent two years will be primarily influenced by earnings, interest rates, and economic growth. My strategy remains steadfast: I will maintain my investment position and continue purchasing promising businesses, regardless of who assumes control in Washington.

My analysis team's approach is consistent as well. They have identified the 10 best stocks for investors to buy right now, and you can access this information by joining Stock Advisor. The Motley Fool's Stock Advisor has demonstrated a remarkable track record, achieving an impressive average return of 850% when compared to the 210% growth of the S&P 500.