Today is Election Day in the US. Midterm elections are important because members of Congress are elected and they are the ones responsible, among other things, of approving fiscal packages (or not) as well as shaping the laws and regulations that govern the country. The market is sensible to election years, as you can see in the table below. Midterm election years are on average significantly lower in terms of S&P 500 returns than other periods, including general election years. But 2022 is not only an election year, is also a high inflation year, where official rates have climbed aggressively, adding more uncertainty to the political landscape. Layoffs have been announced but haven’t yet (fully) materialized. In years like this one, the “kitchen sink” phenomenon does play out where investors tend to dump investments that haven’t worked and start preparing for the next year.
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