What trends have emerged in the stock market following U.S. midterm elections? An analysis of the six midterm elections held since 2000 and their correlation with the S&P 500 index reveals a historical pattern of post-election rallies. However, this year, voices of caution are emerging due to rising interest rates, skepticism about artificial intelligence (AI) investments, and concerns about a potential recession.
Average 9.33% Increase in S&P 500 One Year After Midterm Elections
On November 1, a report from Aju Economy analyzed the S&P 500 index's performance over three, six, and twelve months following the midterm elections from 2002 to 2022. The findings indicate that the index has generally trended upward after elections, with an average increase of 9.33% over one year, the highest among the periods analyzed. The three-month increase was the lowest at 2.38%, while the six-month increase stood at 7.43%. This year's midterm elections, seen as a midterm report card on the 'Trump 2.0' policies, are scheduled for November 3.
The highest one-year average increase in the S&P 500 occurred after the midterm elections on November 5, 2002, with a rise of 14.90%. This was followed by increases of 14.49% in 2022 (November 8), 11.70% in 2018 (November 6), 6.70% in 2006 (November 7), 4.50% in 2014 (November 4), and 3.70% in 2010 (November 2).
For the six-month average increase, the 2010 midterm elections, where the Republican Party regained control of the House from President Obama's first term, recorded a 14% rise. This was followed by increases of 9.20% in 2006, 8.70% in 2022, 6.40% in 2018, 5.10% in 2014, and 1.20% in 2002.
The three-month average increase showed significant variation by election year. The highest was in 2010 at 9.30%, while the lowest was in 2002 at -7.80%. This was followed by increases of 7.30% in 2022, 4.90% in 2006, 1.50% in 2014, and -0.90% in 2018.
Market analysts interpret these trends as indicating that the stock market does not react immediately to midterm election results but tends to rise gradually as uncertainties are resolved. The 2002 midterm elections, which saw a 22.7 percentage point variance in returns, were influenced more by the bursting of the tech bubble than by the Republican Party's gains in both the House and Senate under President George W. Bush.
Moon Nam-jung, a researcher at Daishin Securities, stated, "Midterm elections serve as a midterm evaluation of the ruling party, so the market reacts in the short term based on election results and expectations. However, in the medium term, external factors such as economic outlook, corporate performance, and policy direction come into play. Once uncertainties regarding government policies or legislative initiatives are resolved, it can act as a positive catalyst for the market."
Potential Benefits for Battery, ESS, AI, and Energy Security in a 'Blue Wave'
This year's midterm elections are set for November 3. Analysts predict that if the Democratic Party gains control of both the House and Senate, discussions on reviving tax credits for renewable energy investments based on the Inflation Reduction Act (IRA) will gain momentum, benefiting green energy stocks. Battery, energy storage systems (ESS), and power equipment are expected to be among the primary beneficiaries.
Conversely, if the Republican Party retains the Senate while the Democrats secure the House, a divided Congress is anticipated to maintain continuity in bipartisan-supported energy security and power grid infrastructure policies. Should the Republicans unexpectedly gain majorities in both chambers, investments in AI data centers, nuclear energy, and defense sectors may come to the forefront.
Hana Securities Research Center noted, "If the Democrats achieve a 'Blue Wave' by gaining majorities in both the House and Senate, we can expect a restoration of the renewable energy policies that were scaled back under 'Trump 2.0' and growth in ESS. Additionally, if Congress strengthens its oversight of tariff policies, it could alleviate upward pressure on IT product prices and reduce uncertainties in global supply and demand."
Furthermore, the report stated, "The pattern of rebounds in the New York Stock Exchange and KOSPI one year after U.S. midterm elections has been consistent. If there are concerns, targeting bipartisan agenda sectors such as reducing dependence on the Chinese supply chain and protecting advanced industries could also be a viable alternative."
* This article has been translated by AI.
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