The Dow has climbed in the run-up to Tuesday’s midterm elections, fitting into a historical pattern of bullish trading every four years. According to the Stock Trader’s Almanac, the Dow has consistently risen before and after midterm elections for nearly 90 years. “An impressive 2.8% has been the average gain during the eight trading days surrounding midterm election days since 1934. This is equivalent to roughly 966 Dow points per day at present levels,” the Almanac says. The Dow has gained more than 800 points in each of the last two sessions to cut into last week’s losses. The average is now up 0.5% over the four days prior to the election. In this cycle’s federal elections, Republicans are expected to flip a significant number of seats in the House of Representatives and could end up taking control of both chambers of Congress. That large of a change could limit the gains for stocks. When the president’s party loses at least 10 seats, the Dow’s rally slips to about 2.3%, according to the almanac. A big shift in party control is also responsible for the only negative period on record. “There was only one losing period: in 1994 when the Republicans took control of both the House and the Senate for the first time in 40 years,” the Almanac said. It is unclear why the historical trends are strong for midterm elections in particular. The Almanac suggests that it could be in part a historical coincidence, as some major market bottoms and large military conflicts have occurred around midterms. “With so many negative occurrences in midterm years, perhaps the opportunity for investors to make a change for the better by casting their votes translates into an inner bullish feeling before and after midterm elections,” the Almanac said.
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