Excessive rally ahead as elections loom, says BofA

  • Markets typically recover after a slump in September, but stocks tend to rise even more in midterm election years, Bank of America said.
  • The month of October over all years is positive 59.6% of the time, with an average return of 0.50%.
  • During midterm election years, October is 65.2% in the green, yielding an average of 2.16%.

Markets typically recover after a September slump, but stocks tend to rise more in midterm election years, according to Bank of America.

In a Friday research note, BofA analysts pointed out that the month of October is positive 59.6% of the time across all years, with an average return of 0.50%. The rest of the year is even better, with November yielding 0.83% and December 1.36%.

medium-term bank of america analysts


bank of America


That seasonality intensifies during midterm election years, BofA said, with October 65.2% of the time in the green, yielding an average of 2.16%.

Mid-November also outperforms with 2.03% returns, while December returns are 1.19%, trailing the overall average Santa Claus rally of 1.36%.

stocks of the bank of america


bank of America


In addition, the strategists wrote that the price gains continued in the first half of the following year.

“The SPX is up 91% of the time (21 of the last 23 cycles) with an average return of 16.64% (17.74% median) from the start of the fourth quarter in the middle of the year to the end of 1H Year 3 of the Presidential Cycle,” said BofA. “16 of the 23 cycles had double-digit positive returns over this period. The last two cycles had below-average positive returns, but the last time this period had negative returns was from 4Q 1938 to 1H 1939.”

However, the note did not mention other factors more unique to the year of the 2022 midterm elections, most notably the Federal Reserve’s aggressive monetary tightening campaign aimed at bringing inflation back to a 40-year high.

In addition, the improving electoral prospects of the Democrats were not taken into account this cycle. Investors often prefer a divided government over a single party that controls the White House and Congress.

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