I would love to tell that you the midterm elections will be over tomorrow.
The votes will have been cast, but we won’t know which party will control the U.S. House of Representatives or Senate quite yet.
There may be a few elections that are too close to call and might need a few days to tally absentee and mail-in ballots.
We may even have runoffs in a few races, such as the Georgia Senate race.
But we should have a good idea of what the next two years will look like.
Of course, the cycle never ends.
As soon as elections are over, we start the entire process again with the lead-up to the 2024 presidential election.
Regardless of who wins tomorrow’s election, we have portfolios to manage.
And I have a few pointers on that subject.
Why Politics and Investing Don’t Mix
The data is pretty clear here.
The party in power has little impact on the stock market. My friend Matt Clark noted last week that the market tends to perform well under gridlock.
Since 1933, the S&P 500 has returned over 13% when a Democrat ran the White House and Republicans controlled at least one house of Congress.
But here’s the thing.
The results weren’t awful either when Democrats were in control (9.8% annualized returns) or when Republicans controlled everything (12.9% annualized returns).
We have enough checks and balances in place to prevent either party from driving the car over the cliff.
So regardless of which way the election goes tomorrow, it’s not going to make or break the market.
Opportunities Under Different Scenarios
My friend and Co-Editor Charles Sizemore pointed out that total government dysfunction, while embarrassing to watch, is good for the bond market.
And on Friday, I noted that defense stocks could benefit from a Republican takeover of either the House or Senate, given the party’s emphasis on military spending.
In broader terms, Matt pointed out that stocks tend to trade sideways going into midterm elections. But for the 250 days after elections in the past, the S&P 500 was up about 11% on average.
The results weren’t vastly different whether the elections resulted in a united or gridlocked government.
Adding to this, we’re in the favorable season of November to April. Let’s not forget we are also coming up on the “Santa Claus” rally season.
What We’re Doing Post-Midterm Elections
All of this is good in broader terms and encourages us that the next year will be profitable.
But it doesn’t change anything.
We entered 2022 following a systematic investment strategy. We’ve pushed through this year and wave after wave of volatility following a systematic investment strategy.
And after tomorrow… yes, we will still follow a systematic investment strategy!
One of the best aspects of my Stock Power Ratings system is that it incorporates momentum.
So as I add new investments throughout the year in Green Zone Fortunes, I’m allocating to what is working at that time.
And we regularly prune the portfolio by honoring our stop-losses.
Bottom line: This means that the portfolio’s composition changes and adapts to market conditions.
And whatever those conditions look like on November 9, we’ll continue adapting to them.
To good profits,
Adam O’Dell
Chief Investment Strategist