Mid-term Election Years: A History of Market Declines and Recoveries

As we approach the mid-point of the year, investors are bracing for the potential impact of mid-term election years on the stock market, a period historically associated with the worst performance of the four-year investment cycle.

A History of Mid-term Market Declines

The mid-term election years have been marked by significant market downturns, with most of these declines attributed to external events rather than the market’s internal health.

Let’s examine the 10 instances since 1962 where the market experienced a decline during a mid-term election year:

1962: External Crises and Market Volatility

The Cuban Missile Crisis in October 1962 was a major external crisis that contributed to the market’s decline. However, the earlier crisis in the spring of 1962, which involved a war between President Kennedy and U.S. Steel, also had a significant impact on the market.

Market Impact and Details

• The Dow Jones Industrial Average (DJIA) fell 27% from December 13, 1961, to June 26, 1962.
• The market then experienced a significant recovery, gaining 85.7% by February 9, 1966.
• This pattern of decline followed by a strong recovery has been a recurring theme in mid-term election years.

Key Takeaways

• The mid-term election years have historically been associated with the worst performance of the four-year investment cycle.
• External events, such as the Cuban Missile Crisis and the OPEC oil embargo, have contributed to market declines during mid-term election years.
• The market has often experienced a strong recovery in the 6-12 months following each mid-term election.

FAQs

What are the main causes of mid-term market declines?

Most mid-term market declines are attributed to external events rather than the market’s internal health.

How have past mid-term election years impacted the market?

The market has experienced significant declines during mid-term election years, with the DJIA falling 27% in 1962 and 21.2% in 1990.

What can investors expect in the 6-12 months following a mid-term election?

Historically, the market has experienced a strong recovery in the 6-12 months following each mid-term election, with gains ranging from 15% to 85.7%.

Conclusion

Investors should be aware of the potential risks associated with mid-term election years and be prepared for market volatility. However, history suggests that the market often experiences a strong recovery in the 6-12 months following each mid-term election. As such, investors may want to consider a long-term perspective and avoid making impulsive decisions based on short-term market fluctuations.