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Why the stock market may see minimal impact from the midterm elections

Don't expect a big move in the markets following the much-awaited conclusion of the midterm elections, Wall Street pros contend.

"We actually think politics is going to have a somewhat minimal impact on the markets," Emily Roland, co-chief investment strategist at John Hancock Investment Management, said on Yahoo Finance Live (video above).

Wells Fargo strategist Chris Harvey echoed Roland's sentiments in a recent note to clients: "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,'" Harvey wrote. "Defensive sector outperformance (i.e., Utilities, Staples, Health Care) is expected to last assuming we see an Election Day 'red wave.'"

Overall, investors don't appear to share Wall Street's muted optimism — at least not yet.

The S&P 500 (^GSPC) rallied 1% on Tuesday, while the Dow Jones Industrial Average (^DJI) jumped more than 400 points, or roughly 1.3%. The technology-heavy Nasdaq Composite (^IXIC) gained about 0.9% after the index posted its worst weekly decline since January.

Some of the most active stocks on the Yahoo Finance platform included relatively riskier plays such as Amazon (AMZN), Apple (AAPL), Snap (SNAP), and Nvidia (NVDA) as traders embraced the risk-on vibes.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., September 15, 2016.  REUTERS/Brendan McDermid
Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., September 15, 2016. REUTERS/Brendan McDermid

Historical data suggests a positive bias in the market in the month ahead of the midterms is warranted.

The S&P 500 has historically outperformed the market in the 12-month period after a midterm election, with an average return of 16.3%, per data from US Bank. That outperformance is especially the case for the one- and three-month periods following midterm elections.

But given that the economy is still dealing with high levels of inflation and an unfriendly Federal Reserve hiking interest rates, investing pros may be right to prepare for a post-election hangover in the stock market.

"You've got to think about some of these big challenges that we have," Roland explained. "The economy is clearly decelerating right now. We're contending with inflation. I think the inflation data that we get on Thursday is probably much more important than the political backdrop right now. So we want to be careful about sort of overplaying politics and making cross-asset decisions right now."

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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