82% Probability of S&P 500 Gains After U.S. Midterm Elections
As global stock markets repeatedly swing up and down over worries that money is pouring too heavily into artificial intelligence (AI), investors are focusing on how the stock market will move after the U.S. midterm elections, which take place on the 4th.
Historical statistics show that stocks have often risen in November of midterm election years (congressional elections held midway through a president's term). According to Korea Investment & Securities, since 1958 the S&P 500 (an index tracking the stock prices of 500 large U.S. companies) rose in November of midterm years with an 82% probability (14 out of 17 times), with an average gain of 3.8%. Of the nine midterm elections held since 1990, the index rose eight times, with the sole exception of 1994, when the bond market was severely shaken. The sector with the highest probability of gains in November of U.S. midterm years was consumer discretionary, industrials, and materials, which posted an 89% rate.
Jung Jeong-young, a researcher at Korea Investment & Securities, explained that the market is treating the mere conclusion of the event itself as the removal of uncertainty, rather than focusing on the midterm results. He noted that although big tech (large technology) stocks saw significant corrections in October this year, he does not view this as a break from the long-term uptrend, and also mentioned the possibility of short covering in tech stocks (repurchasing shares to close out short positions) after the election results are confirmed.
Brokerages analyze that a rally in U.S. markets works positively for the domestic market. When U.S. stocks rise, appetite for global risk assets improves, and in particular, gains in U.S. big tech stocks boost expectations for the semiconductor industry, positively affecting Korean large caps such as Samsung Electronics and SK Hynix, the analysis says. Lee Jae-won, a researcher at Yuanta Securities, pointed out that the average return of the KOSPI 200 days after the nine midterm elections held since 1990 was 18.2%, analyzing that rather than which party won, the market reflected the effect of reduced political and policy uncertainty as the election concluded.
