Sec. POLICY Power dynamic rebalanced in Washington he 2022 midterm KEY TAKEAWAY: IT’S OVER HISTORY SAYS election was closer Perhaps the most important outcome GRIDLOCK IS GOOD T than many expected, of the election is simply that we have The other major takeaway from the but in the end, voters it behind us. Historically, midterm election is that we now have “mixed chose to rebalance years have been volatile for markets, government” with Democrats holding the power dynamic in Washington. and 2022 has been no exception. the Oval Office and a majority in the As expected, Republicans gained But the third year of the presidential Senate while Republicans have a enough seats to win a narrow majority cycle has historically been the majority in the House. Markets have in the House, while Democrats held strongest [Fig. 13] and a weak 2022 tended to favor mixed government on to their slim majority in the Senate. may help set up that pattern again. [Fig. 14], since neither party is able Despite Republican’s narrow House We would add a note of caution, to give in to its worst excesses and majority, their victory in the House though, that increased fiscal stimulus any legislation that does get passed significantly shifts the balance of in anticipation of the presidential is subject to compromise. It may also power, since only legislation with election has often supported returns be that the government that governs broad bipartisan support will get in the third year of the cycle and we best is sometimes the one that passed once the new Congress is are unlikely to see that added tailwind governs least, and mixed government sworn in on January 3, 2023. next year. has a tendency to create gridlock. Stocks have always gained a year after midterms S&P 500 INDEX RETURNS ONE YEAR AFTER MIDTERM ELECTIONS DEMOCRATIC PRESIDENT REPUBLICAN PRESIDENT 35% fig. 30% 13 25% 20% 15% AVERAGE: 14.7% 10% 5% 0% 1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018 Source: LPL Research, FactSet 11/15/22 All indexes are unmanaged and cannot be invested into directly. Past performance is no guarantee of future results. The modern design of the S&P 500 Index was first launched in 1957. Performance before then incorporates the performance of its predecessor index, the S&P 90. LPL RESEARCH