Make Money on the Mid-Term Elections

As we record this, the Congressional mid-term elections are only a few weeks away. Things look bad for the Democrats, but they look cloudy for Republicans, too, who have to get to handle on the Tea Party going on in their midst. And in all this, how do things look for your money?

Well, according to economist Ed Yardeni, pretty good. History shows that midterm elections tend to be healthy for the stock market. In the 12 midterm election years going back to 1962, the S&P 500 has risen over 2% in the two months prior to the election and over 7% in the three months following.

The record holds whichever party wins the midterms, but it's especially strong when the result is a Democratic president and Republican Congress--which is what we may end up with in November. When that scenario is in place, stocks average a nearly 15 percent annual return in the six months after the election.

And wait: It gets better. 2011 will bring us the third year of the Obama Presidency, and third years tend to be the best in the Presidential election cycle. Going back to 1952, yardeni found that the market averaged a gain of 18% during a first-term President's year number three.

And it makes sense: that's the year when Presidents and Congress join together to stoke the economic engines as their re-election campaigns get under way. You can't bet your entire portfolio on this phenomenon. But if you were looking for a reason to stick to your investment guns at a time when the economy is still fragile and unemployment remains high and consumers are still depressed, you can tell yourself this: At least for the next six to 12 months history is on your side.

Photo by Flickr User The-Lane-Team, CC 2.0

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