How to Trade the Midterm Elections
MILLBURN, N.J. (TheStreet) -- The election of Republican Scott Brown to fill the late Ted Kennedy's U.S. Senate seat set off a political tidal wave in Washington. The Senate Democrats no longer have the 60 votes necessary to assure cloture (a vote to end debate), putting health care legislation in jeopardy and raising the stakes for upcoming midterm congressional elections, which will likely be heating up much earlier than usual.
In 2008, I wrote about how to trade a presidential election. With the 2010 midterm elections on our horizon, let's investigate whether we can come up with some guidelines for trading those.
Note that I have accumulated data for the S&P 500 going back to 1950, a midterm election year. Thus, 2009 (a post-presidential year) represented the end of the 15th presidential election cycle in my database.
The Presidential election cycle is comprised of four distinct years:1. Year Before Presidential Election
2. Presidential Election Year
3. Post-Presidential Election Year
4. Midterm Election Year First, let's take a look at how each of these years and the constituent quarters has performed on average in each of the election cycle years:
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