The looming midterm elections in the U.S. set up stocks for a “sell the rumor, buy the news” event, according to Alpine Macro. Chief equity strategist Nick Giorgi said that in the last 14 midterm cycles, the S & P 500 averaged just a 1.6% return in the nine months leading up to the elections. This time, though, the S & P 500 has soared 11%. The strong lead-up to this election could lead investors to trim exposure to equities ahead of the Nov. 3 contest. “Expect pain before gain as equities move into the drop zone through U.S. midterms, with a risk-off skew of outcomes,” Giorgi said in a note to clients. However, any potential dip would create a buying opportunity in stocks, he said. “The big question is, are these runup gains on borrowed time or just building? We believe the latter, and history supports continued gains. Since 1970, the S & P 500 has generated an average price return of 13.8% in the nine months following midterms,” Giorgi said. Traders on prediction markets platform Kalshi see a 66% chance of Democrats gaining a majority in the Senate and a 90% probability they’ll control the House. To be sure, odds and gambling platforms do not use methodologies used by traditional political polling, and therefore are not substitutes for political polls. If government is divided, that could also give equities a boost. Giorgi said the S & P 500 averages a 14% return when government control is split between Republicans and Democrats. Disclosure: CNBC and Kalshi have a commercial relationship that includes customer acquisition and a minority investment.
Midterms are setting up stocks for a ‘sell the rumor, buy the news’ event, says Alpine Macro
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