After midterms, stocks could pop 20%

The expected outcome from midterms, according to Goldman Sachs, is for a Democratic-controlled House and a Republican Senate majority. According to history, this could be the best-case scenario for the S&P 500 one year later, with a potential 20 percent appreciation for the broad-based U.S. stock market index.

As previously reported by FOX Business, Goldman Sachs’ political economists believe Democrats will gain control of the House and the Republicans will retain a slim Senate majority after midterms. A divided Congress would mean increased equity volatility and an uncertain future for infrastructure spending while pharmaceutical stocks could benefit, the bank’s analysts explained in a research note.

The stock market fares fare the worst, in the short-term, when both the House and the Senate flip, dropping over 1 percent in the month following the election. Longer-term, however, they snap back, and on average have been up over 4 percent three months after the election and up 16.9 percent one year later, according to Dow Jones Market Data

One year after the midterms, stocks have been consistently higher, according to the data, with the best performance coming under a Democrat-controlled House and a Republican Senate. In this situation, the performance has been almost a 20 percent appreciation in the S&P 500’s value. The worst performance has been under a Republican House majority and a Democratic-controlled Senate, in which the S&P 500 has appreciated a mere 3 percent on average. The outcome, one year later, when both the House and Senate flip has been a 17 percent appreciation in the S&P 500.

The S&P 500’s returns have, on average, doubled in November during a midterm election year, with the S&P 500 averaging a return of 2.03 percent, according to data going back to 1970. During November in an off year the S&P 500 averages 1.08 percent while during November during a presidential election the average return is 1.09 percent.