This week the US had their mid-term elections and with the Dow Jones down over 10% for the year, many are looking for positive news to drive the market higher. Given this, it’s timely to review how the mid-term elections effect the US stock market.
Looking back over 40 years from 1982 when Ronald Regan was the US President to 2018 when Donald Trump was the president, there have been 10 mid-term elections. On nine occasions, the Dow Jones rose the following year while in 2015, when Barrack Obama was the president, the Dow Jones fell just 2%.
The highest gain on the Dow Jones following the mid-term elections was 33%, while the lowest was 2% with the average rise around 18%. Interestingly, in the year the mid-term elections are held, there are three occasions, including 1990, 2002 and 2018, where the Dow Jones fell in price, like it has done this year. Yet the following year, it rose 20% or more. So, what does this indicate that may unfold with the Dow Jones in 2023?
Probability suggests there is a 90% chance the Dow Jones will rise in 2023 and while we only analysed the midterm elections over 40 years, the data also indicates that the rise in 2023 is likely to be strong and in the order of 20% or more. Given that the Dow Jones has only fallen seven times since 1982, three of which were the consecutive years from 2000 to 2002, it means there is a 71% chance of the Dow Jones rising in 2023 given 2022 is a negative year.
While probability does favour the Dow Jones rising next year, which means the Australian market should also be bullish, it is not a done deal, and you need to remember, as individuals we buy stocks and not the market. Therefore, you need to ensure you choose wisely when deciding which stocks to buy.
Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the bestselling and award winning book Accelerate YourWealth—It’s Your Money, Your Choice, which is available in all good bookstores and online at www.wealthwithin.com.au