This article was originally published on ETFTrends.com.
The capital markets are bracing themselves for what could be a raucous ride for the Nov. 6. midterm elections, but if history repeats itself, according to Stephen McBride of the RiskHedge Report, it could bode well for stocks and in turn, three exchange-traded funds (ETFs).
As McBride noted in a MarketWatch article, stock movements into the green are a perfect 18-for-18 following midterm elections--the type of sure-shot accuracy that could rival even basketball star Stephen Curry from the three-point line.
"Since 1946, there have been 18 midterm elections. Stocks were higher 12 months after every single one. Every single one," McBride wrote. "That’s 18 for 18. Even though we’ve had every possible political combination in the past 72 years. Republican president with Democratic Congress. Democratic president with Republican Congress. Republican president and Congress. Democratic president and Congress."
It's not just accuracy, but also the extent of the rise as McBride noted that following midterm elections, stocks have gone up by an average of 17% and even higher from their lows--32%. McBride also alluded to the latest October sell-off as standard fare when reacting as a precursor to midterm elections.
"There’s one last important point you should know," wrote McBride. "Leading up to midterms, U.S. stocks typically perform poorly. From January to October in midterm years, they drop an average of roughly 1%. In all other years, stocks rise roughly 7% in that time frame."
CNBC underscored this point regarding the S&P 500 index in particular in the chart below:
In order to capture the subsequent run up in stocks, investors may want to consider three ETFs that track the S&P 500 to take advantage of the post-midterm election gain. Investors are hoping a rise in U.S. equities for a 19th consecutive time are in store, which is a much-needed break after October's volatility.
"For all the market’s gyrations in the past few weeks, the S&P 500 is roughly flat this year," McBride wrote. "If we stay on script, we should expect the market to surge in November after the uncertainty of the elections is behind us."
1. SPDR S&P 500 ETF (SPY) SPY seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500 Index. The Trust seeks to achieve its investment objective by holding a portfolio of the common stocks that are included in the index, with the weight of each stock in the Portfolio substantially corresponding to the weight of such stock in the index. 2. iShares Core S&P 500 ETF (IVV) IVV seeks to track the investment results of the S&P 500, which measures the performance of the large-capitalization sector of the U.S. equity market. The fund generally invests at least 90% of its assets in securities of the underlying index and in depositary receipts representing securities of the underlying index. It may invest the remainder of its assets in certain futures, options and swap contracts, cash and cash equivalents, as well as in securities not included in the underlying index, but which the advisor believes will help the fund track the underlying index. 3. Vanguard S&P 500 ETF (VOO) VOO seeks to track the performance of a benchmark index that measures the investment return of large-capitalization stocks. The fund employs an indexing investment approach designed to track the performance of the Standard & Poor's 500 Index, a widely recognized benchmark of U.S. stock market performance that is dominated by the stocks of large U.S. companies. The advisor attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index.
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