Bulls are excited about getting the midterm elections behind us. Since 1950, all 18 midterm elections have been followed by an up year for stocks, according to LPL Financial. LPL also noted nearly identical returns after wins by both Democrats and Republicans, but not all gridlock gets treated equally. Chris Harvey from Wells Fargo noted this morning in a note to clients that, since 1948, the best combination for returns is a Democratic President, and a Republican House and Senate. That has occurred on four occasions since 1948 and has produced a 41% two-year return in the S & P 500. "We believe this remains the most likely outcome for Election Day 2022," Harvey said. The reason the markets favor gridlock seems clear, LPL Financial said: 1) Lower risk of tax increases, 2) More centrist appointments to key posts, and 3) greater difficulty raising the debt ceiling. Regardless, bulls expecting an end of the year lift from the election tailwinds and other seasonal factors should not get too enthusiastic: strategist after strategist has warned that the macro environment is the dominant factor in setting stock prices, meaning the Fed and its battle against inflation, recession risks, and geopolitics will trump any seasonal factors. Typical is this comment from Wells Fargo head of equity startegy Chris Harvey: "Post-election, we would expect a small lift in the equity market over the next month (+1%) — assuming the CPI print on Thursday is not `hot.'"
