Investor anxiety that one or both houses of Congress will flip to Democratic control in next week’s midterm election is thought to have added to one of the stock market’s worst Octobers in years.
The brutal month reversed some of its losses in its final two days when a cluster of strong earnings led by Facebook and General Motors appeared to rescue the market from a steeper decline, particularly in technology shares.
Still it was ugly. The tech-heavy Nasdaq Composite on Wednesday was down about 9 percent for the month. The Dow Jones industrial average was about 5 percent down, and the Standard & Poor’s 500-stock index was about 7 percent negative.
Sam Stovall, chief of U.S. equity strategy at CFRA, published an analysis that showed mid-term election years make for dicey days in the financial markets.
“The second and third quarters of the midterm election year traditionally were the most challenging of the entire 16-quarter presidential cycle,” Stovall said in a report examining post World War II midterm elections. “The reason boils down to one word: uncertainty.”
Historically, the party controlling the White House has lost an average of 22 seats in the House after the midterm election and four seats in the Senate. “With this kind of unsettling track record, it should come as no surprise that the S&P 500 posted erratic returns in September of midterm election years,” he wrote.
The election is the talk of Wall Street, where a historic bull market has pushed to a series of all-time highs over the past year. But some say concerns that a Democratic legislature could put the kabosh on the good times are exaggerated.
The more likely culprits are the Federal Reserve raising rates, less-than-perfect earnings and a looming Cold War with China.
Kristina Hooper, global market strategist at Invesco, said the U.S.-China trade stalemate is fueling the angst.
“It seems that we are headed for more tariffs, given that China does not appear interested in capitulating,” she said. The “stock market sell-off is a direct result of the exacerbation of trade tensions.”
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