Market returns tend to be muted until late in midterm years

Since markets rise over long periods of time, it makes sense that a price chart of an “average” year would also steadily increase. However, isolating just the years that a midterm election were held shows that investors treat these periods differently than others. In these instances, markets tend to oscillate for most of the year, gaining little ground until shortly before the elections.

The old adage that markets don’t like uncertainty seems to apply here. Early in the year there is less certainty of the election’s outcome and the subsequent effects on future policy changes. But markets tend to rally when results are easier to predict in the weeks leading up to the election, and continue to rise after the polls finally close and winners are declared.