After the Election, the Bulls Step Up
In just two days, the hype and hysteria surrounding the midterm elections will vanish.
I don’t care if you vote, who you vote for, or which political party ends up controlling the House and the Senate. I don’t believe the stock market cares, either.
But I do believe resolution is good for stocks. Remove one of the media’s major talking points — that elections are fraught with danger and uncertainty for the market — and you have one less piece of negative news weighing on stocks.
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In fact, history shows that market performance following midterm elections is surprisingly bullish.
“According to data compiled by Yardeni Research, the S&P 500 has been up in the 12 months following every midterm election since the middle of the last century,” Barron’s notes, “with gains from 1.1% in the post-1986 vote stretch (which included the Oct. 19, 1987, crash) to 33.2% in the year after the 1954 election.”
We have another reason to feel a little better about the market following last month’s steep decline: stocks are about to enter their best six months of the year.
The Stock Trader’s Almanac has the first word on this seasonally strong period for stocks that begins in November and runs through April — right up until we’re supposed to “sell in May and go away”.
According to decades of research, the Almanac discovered that most of the stock market’s gains occur within this six-month period. In fact, their Tactical Seasonal Switching Strategy is based on this core principle. If you simply invest in the Dow Jones Industrial Average between November 1st and April 30th, then switch into fixed income for the weakest six months, the Almanac’s data show you would earn “reliable returns with reduced risk since 1950.”
Digging a little deeper, it’s possible that a weak October could actually help generate positive market returns.
“Looking back over the last three-plus decades, every year that experienced a negative October ended up posting positive returns over the month that followed,” our in-house quant Jonas Elmerraji explains. “The only exceptions were years when we were in a true generational bear market: 1987, 2000 and 2008.”
Obviously, the October swoon hasn’t come close to rivaling the outright crash conditions of these historic meltdowns. That’s also bullish!
An October sell-off when stocks aren’t in crash-mode has resulted in the market hitting new all-time highs within 90 days on average, Jonas explains. That’s good news for the bulls as we head into the final stretch of 2018 trading.
Despite the bullish data, many investors are worried about the market as we enter the final two months of 2018.
Last week’s relief rally is a good start for a solid bounce. But stocks aren’t out of the weeds just yet. The major averages remain well off their highs — and vulnerable to further downside action.
There’s no shame in feeling a little bearish these days. Bad news about tariffs and political nonsense is spiraling out control. Your stocks are down. You didn’t win Mega Millions…
But I bet some cheap booze and a calorie bomb might help. Just head on over to your neighborhood Applebee’s for the cure.
“Applebee’s knows you’re stressed, and it wants to make you feel better with cheap alcohol and lots of food,” CNN Money reports. “While fast food brands are ditching artificial ingredients and offering healthier alternatives, Applebee’s has embraced comfort food for a banner year.”
The strategy is working like a charm. Just check out shares of Applebee’s parent company, Dine Brands Global (NYSE:DIN). They’re up a staggering 76% year-to-date:
The numbers don’t lie. The chain has posted 43 consecutive weeks of same-store sales increases, according to Yahoo Finance. And more than 1,000 locations will offer deliver by the end of the year.
If the market can’t hold on to its bounce this week, at least you can get a double order of jalapeño poppers delivered to your door. Just don’t forget to tip your driver…