Midterm Election Stock Market Playbook

Midterm Election Stock Market Playbook

As investors gear up for September, most expect a bumpy ride.

History proves it’s a red month on average. That’s the bad news. The good news is Q4 tends to be a great time for stocks. And when it’s a midterm election year, returns are even better.

Here’s your midterm election stock market playbook.

Midterm Election Stock Market Playbook

If you’re scratching your head about the stock market’s next move, you’re not alone. The macro landscape is murky to say the least. Investors are dealing with elevated energy prices, war, high inflation, and an unclear earnings outlook for stocks.

Add to the mix a midterm election year, and you’ve got a recipe for heightened volatility.

But I bring good news! There are historical patterns that tend to play out for markets during midterm election years. More importantly, investors can better position their portfolios by turning to data and history for clues.

Today we’ll take a ride through market history looking at monthly stock performance. Then we’ll zero in on prior midterm election years. This will likely shed light on what’s in store for 2022. Odds are this information will equip you for the months ahead.

Midterm Election Stock Market Playbook

As we get closer to the midterm election in November, now’s the time to get a gameplan.

To start, let’s understand seasonal patterns in stocks. Going back to 1990, September tends to be bumpy, while October through December are jumpy.

As you can see below, the S&P 500 averages a -.5% return in September, while October, November, & December gain +1.4%, +1.8%, and +1.5% respectively:

S&P 500 Monthly Returns 1990 - 2022

Right off the bat that tells you to plan for a weak September, then expect brighter days into year end. But what about midterm election years?

This seasonal pattern actually performs stronger. In midterm election years going back to 1990, September performs a tad strong with an average return of -.3% while October and November post handsome gains of +2.5% and +2.4% respectively:

S&P 500 Monthly Returns During Midterm Election Years 1990 - 2022

This solid performance has the making of a midterm election stock market playbook. But, are there other patterns we can study for clues? YES.

Our Big Money Index (BMI) has a strong seasonal pattern in midterm election years, too. Typically, we witness a downward BMI heading into October, then a major ramp into November.

Charts always make recurring patterns easier to spot.

Here’s 1994 – 2006. Notice how in September the BMI is usually in a downtrend while October begins a new uptrend:

BMI During Midterm Election Years 1994 - 2006 | MAPsignals


As large investors return to the office in September after Summer vacation, volumes and volatility surge. This causes markets to bob and weave as end of year bets are made.

Let’s keep going.

Viewing 2010 – 2018 you’ll notice the same pattern emerges. Weakness in September shifts to strength in October and November:

BMI During Midterm Election Years 2010 - 2022 | MAPsignals

Over the past decades, the sell in September and buy in October and November playbook has been pronounced. Which brings me to today’s market environment.

Above in the bottom right, you’ll see 2022. Markets triggered oversold in mid-July and since then we’ve broken into overbought territory. Recently the BMI fell below the red zone.

Will this midterm election year play out in a similar fashion to recent history? I believe it’s possible.

Last week, I noted how once the BMI breaks below 75%, it can spell trouble for stocks. Given there’s a strong tendency for weakness in September, it’s a decent bet to expect lower BMI readings as we approach the upcoming midterm election season.

Data can signal that there’s weakness under the surface of the market.

But don’t get too bearish! Ugly Septembers often preface bountiful Octobers and Novembers – especially in midterm election years. The Big Money Index can help guide you through the cloudiness.

Let’s wrap up.

Here’s the bottom line: As we approach September, use caution. September is a red month on average going back to 1990. That’s the bad news. The good news is stocks pop in Q4.

And during midterm election years, October and November produce big performances, with +2.5% & +2.4% gains respectively for the S&P 500.

Add to it the consistent pattern of the Big Money Index, and you’re looking at a solid midterm election stock market playbook! MAPsignals’ unique lens on institutional activity can make a difference.

Look, the future isn’t guaranteed. However, utilizing history and a data-based approach to investing, the odds get stacked in your favor. That’s what we’re all about!

Follow the Big Money footprints with MAPsignals.

If you’re looking to kick your trading up a notch, get started with a MAPsignals subscription today. Get access to our automated portal that auto-updates each morning.

Now, that’s a gameplan.