As countless Americans head to the polls on Nov 6, investors are speculating the potential impact that the mid-term elections might have on the U.S. stock market.
Going by historical trends and economic indicators that foresee positive effect on financial markets following the elections, it will be prudent to invest in a few growth stocks that could gain from Tuesday’s polls.
A Divided Government Could Drive Stocks Higher
Tuesday’s election is widely expected to see Democrats gaining control over the House of Representatives, while Republicans will probably retain control of the Senate. According to MFS Investment Management, such a diversification across the Senate and House of Representatives may drive stocks upward this election season, based on historical data from 1961-2010.
Bank of America economist Joseph Song further noted that the S&P 500 Index came up with its best performance under a Republican president with opposing parties controlling the House of Representatives. In such a scenario, the broad-based index registered an annualized return of 12%.
Historical Trends Paint Pretty Picture for Stocks
The performance of financial markets relies largely on seasonal trends instead of mere speculation. According to RiskHedge, there have been 18 mid-term elections since 1946, and following each election, stocks have soared higher for a year. In the last 72 years, stocks have jumped as much as 17% on average in the 12 months after a mid-term election.
The trend has continued through every possible combination of a divided government in the House and Senate and yet, the outcome has been the same, thus strengthening the hopes of a better performing market following the mid-term election.
“Some pre-midterm volatility could be in the cards, but the good news is that looking at the past 18 midterms (back to 1946), the S&P 500 was higher a year later every single time,” added Ryan Detrick, Senior Market Strategist at LPL Financial Research.
To further solidify RiskHedge’s and LPL Financial’s report, investors can consider S&P Capital IQ’s study, which concluded that the S&P 500 has gained 15.3% on average in the six months following a mid-term election in the third year of a given presidency’s term, as in this case with the Trump administration. The study also found that the trend has an accuracy of 94% based on their research in the timeframe Oct 31, 1944 – Sep 29, 2014.
UBS Private Wealth Management’s managing director, Alli McCartney, too chipped in and said that stocks “could absolutely rally after midterms.” The impressive seasonal effect around mid-term elections on the stock markets suggests an optimistic outlook toward investments.
In addition, Halloween indicator, the ideology of selling stocks in May and staying away from the markets until November, could have a positive impact on both investor sentiment and the financial markets at present.
Strong U.S. Economy to Continue Driving Markets
Better-than-expected expansion in the country’s gross domestic product (GDP) put up an optimistic picture about stocks as well. U.S. GDP grew 3.5% at an annualized rate compared with Dow Jones economists’ estimation of 3.4% for the third quarter.
Keeping in mind GDP expansions for the first three quarters this year, it’s likely that Trump’s 3% annual growth rate will be achievable.
The U.S. economy, by the way, was driven by a surge in consumer spending and a healthy job market.
4 Growth Stocks to Buy
Given the aforesaid bullish factors, investors can look forward to stocks that have the potential to scale higher. Therefore, we have hand-picked four solid growth stocks for you to invest in. All the stocks carry a Zacks Rank #1 (Strong Buy) and a Growth Score of A.
NetApp Inc. NTAP is the data authority for hybrid cloud. The company’s Zacks Consensus Estimate for the current year has witnessed 1.6% increase over the past two months. NetApp’s expected earnings growth rate for the current year is 27.7% compared with the Computer- Storage Services industry’s projected rise of 9.1%.
Atkore International Group Inc. ATKR manufactures and distributes electrical raceway products. The company’s Zacks Consensus Estimate for the current year has witnessed 0.3% rise over the past 60 days. Atkore’s expected earnings growth rate for the current year is 93% compared with the Wire and Cable Products industry’s projected rise of 36%.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Bio Telemetry, Inc. BEAT provides ambulatory outpatient management solutions for monitoring clinical information regarding an individual's health. The company’s Zacks Consensus Estimate for the current year has witnessed 13.9% increased over the past two months. Bio Telemetry’s expected earnings growth rate for the current year is 77.3% compared with the Medical Services industry’s projected rise of 25.4%.
The Chefs’ Warehouse, Inc. CHEF distributes specialty food products in the United States. Bio Telemetry’s expected earnings growth rate for the current year is 77.3% compared with the Food - Miscellaneous industry’s projected rise of 4%. The company’s Zacks Consensus Estimate for the current year has witnessed 1.2% increase over the past two months.
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