Mid-Term Market Moves – Part 1

So far, the stock market performance in 2010 has tracked the typical pattern for U.S. stocks in mid-term election years, albeit with a bit more than the usual volatility. The path is usually range-bound and volatile, but capped by a strong fourth quarter rally averaging about 8%.

The market’s reaction to mid-term elections has nearly always been positive, even when the balance of power has shifted in one or both houses of Congress—as we expect this year with the Republicans having a good chance of taking the House. In four of the five years that mid-term elections resulted in a change in power (2006, when Democrats took the House and Senate; 2002, when Republicans took the Senate; 1986, when Democrats took the Senate; and 1954, when Democrats took the House), fourth-quarter returns were positive, much like those in mid-term election years when no change in power took place.

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