As we noted back in January, midterm election years tend to be relatively volatile periods—with stocks historically seeing the largest intra-year pullbacks.
But why is that? Of course, there are many likely reasons, but one potential reason is that in the past the political party that has won the presidency has lost seats in the House and Senate during the midterm election, generating some uncertainty during these years.
Looking at the full four-year presidential cycle also shows that the second and third quarters of the president’s second year in office (so right now) can indeed have bulls frustrated. “Going all the way back to the Dow’s inception in 1896 displays that this quarter and next quarter are quite weak historically. But the good news is we’ve seen big rallies after this weakness. However, this is something to be aware of as we move forward in this midterm year,” said Ryan Detrick, Senior Market Strategist.
Although we expected more volatility this year, we are seeing some signs of better times ahead for equites. Be sure to be on the lookout for our latest Weekly Market Commentarydue out Monday, where we look at some positive technical developments on equities.
The Dow Jones Industrial Average (DJIA) Index is comprised of U.S.-listed stocks of companies that produce other (nontransportation and nonutility) goods and services. The Dow Jones Industrial Averages are maintained by editors of The Wall Street Journal. While the stock selection process is somewhat subjective, a stock typically is added only if the company has an excellent reputation, demonstrates sustained growth, is of interest to a large number of investors, and accurately represents the market sectors covered by the average. The Dow Jones averages are unique in that they are price weighted; therefore, their component weightings are affected only by changes in the stocks’ prices.
The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.
All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. All performance referenced is historical and is no guarantee of future results.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
This research material has been prepared by LPL Financial LLC.
To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.
The investment products sold through LPL Financial are not insured deposits and are not FDIC/NCUA insured. These products are not Bank/Credit Union obligations and are not endorsed, recommended or guaranteed by any Bank/Credit Union or any government agency. The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible.
For Public Use — Tracking #1-719863 (Exp. 04/19)