Folks, we’re in a midterm election year…
And if history proves right, things are going to get worse before they get better.
The average peak-to-trough pullback in midterm election years over the past century is 17.4%. That’s roughly eight percentage points worse than the current decline…
The benchmark S&P 500 Index recently dropped into “correction” territory. Even after rallying so far this week, it’s still down more than 9% from its January high.
And importantly, the corrections in these midterm election years typically last between three and four months. So the bottom line is that we likely haven’t seen the lows yet.
We don’t want to “catch a falling knife.” But that doesn’t mean it’s time to give up hope…
You can still find opportunities in the markets today if you know where to look. Plus, the data around the midterm elections comes with a twist…
In fact, it might be setting us up for a serious bull run that will pull the market out of the current correction. And it could get the market back to making new highs before we know it.
It’s time for a bit of midterm hope…
You see, despite everything going on in the world, this type of pullback is normal in midterm election years. Sure, things could get a little bit worse in the short term.
But in years like this one over the past century, they haven’t gotten too bad before turning around. And history shows that the stock market is up an average of 32% a year later.
We’re also entering a period in mid-to-late March when stocks tend to bottom out on a short-term basis.
You’ve likely read in recent weeks about the endless supply of stocks for sale, the lack of bids, and the relentless selling pressure from algorithmic trading programs. However, that could change over the next few weeks because of two factors…
First, corporate stock buybacks are projected to be at record levels in 2022. They could approach as much as $900 billion. A blackout period is coming up ahead of first-quarter earnings season in April. That could cause an acceleration in buybacks in the coming weeks.
Second, because of the sharp drop in equities this year, the quarter-end rebalancing of institutional portfolios will shift out of bonds and into stocks. That could bring $230 billion in demand for stocks over the next two weeks, according to JPMorgan Chase (JPM).
So in other words, many of the conditions for a sustainable bottom are in place.
With that said, any rallies from the current level should be viewed as “contra” affairs. These rallies can be steep – in the 5% to 10% range, as we’ve seen recently. But the trend will still be down until the S&P 500 closes above a significant resistance level at 4,500.
The takeaway is simple… After years of the market blindly marching up, we’re in a new cycle. The world is full of uncertainty. Many folks aren’t sure what they should do next.
That means now, more than ever, you need data to guide you. Throwing darts and hoping to get lucky isn’t going to work anymore.
But on the positive side, history shows us that we’re nearing a bottom. And astute investors can get ahead of the game with the right opportunities.
With the data at your side, now is the time to get out there and find them.
Good investing,
Marc Chaikin
