US History Shows Mid-Term Election Results Bring Rally Into Stocks

ByEdward Thompson

Nov 20, 2022

Regarding the mid-term elections in the US, there were many predictions from the pundits that expected a ‘red wave’.

However, the results were to the contrary as the Democrats were able to wield their control in the US Senate. Resultantly, the predictions of pundits failed to become true.

FTX’s Downfall Makes 2022 The Worst Year in Crypto History

On the other hand, the crypto industry is experiencing the worst time ever in its history particularly because of FTX’s downfall.

FTX, which was the second biggest crypto trading platform after Binance, failed in countering the liquidity crisis. Consequently, the firm was forced to file for bankruptcy.

Crypto trading platform’s founder and CEO, Sam Bankman-Fried, quit his position as FTX’s CEO and is currently under investigation for embezzling customers’ funds.

Similarly, separate investigations to have been initiated against FTX by the US Securities & Exchange Commission (SEC) and the Department of Justice (DOJ).

Contagion Spreading Like Wildfire

FTX however wasn’t the first in the crypto industry which filed for bankruptcy. In fact, crypto trading platforms such as Three Arrows Capital, Voyager Digital, and Celsius also filed for bankruptcy a few months ago.

It seems as if the contagion has taken over the crypto industry which has led many into believing that regularization of a ‘decentralized industry’ is necessary.

Wall Street – The Actual Winner of Mid-Term Elections

One way of looking at the mid-term results is that the actual winner is not Democrats nor Republicans but Wall Street.

Though Democrats acquired a majority in the Senate, they failed to obtain control over the US House.

Resultantly, there is gridlock as expected. History shows that Wall Street is fond of gridlocks, particularly because they are seen to be enormously constructive for the trading markets, especially the stocks.

Stock Rallies When There Is a Gridlock

The past 72 years’ history reveals that when the White House is controlled by Democrats and Republicans ruled in Congress, S&P 500 has made record-breaking yields.

This phenomenon was duly noted by an independent research firm known as ‘LPL Research’.

The researcher further took notice of boosted returns when Congress was divided, irrespective of whatever party took over the Oval Office.

The worst ever year stock markets have seen was undoubtedly 2008 when came the global financial crisis. However, as compared to 2008, the present year seems to be ending on a brighter side.

5.5% Rally in Stocks

More or less, S&P 500 remained at all times positive from 1946 till 2018 when the average return rate was above 18%.

Currently, investors have to deal with a number of concerns which include amongst others, inflation, restrictive monetary policies, etc., apart from politics only.

However, on 10th November, when markets became wary that the annual inflation rate will be slightly reduced, a 5.5% rally became evident in stocks.

Regardless of inflation still being on the higher side, sentiment in the market is that Federal Reserve will come to terms with rising inflation.

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