Midterm Election Boosts Stock Market, 401(k)s

Stocks jumped on Nov. 4 after Democrats secured decisive victories in the midterm elections, with the Dow Jones rising 2.1% and the S&P 500 up 1.8% in early trading. The Nasdaq also saw a 2.5% increase.

Morningstar analyzed 100 years of stock returns and found that stocks historically perform better in November of election years than in non-election years. On average, stocks rose 2.4% in election-year Novembers compared to 0.9% in non-election years.

Analysts attributed the market's positive reaction to the end of uncertainty following the election. Dan Lefkovitz, a Morningstar strategist, said the results 'put an end to uncertainty, which is generally welcomed by markets.'

The midterm elections unfolded with minimal disruptions, and President Trump expressed acceptance of the results, which experts believe helped stabilize the market. Chris Grisanti, a market strategist, noted that the resolution of the election removed weeks of potential political uncertainty.

Despite the positive market reaction, analysts warned that future elections could bring uncertainty if losing candidates challenge results. Lou Whiteman, a stock analyst, advised investors to remain bullish, emphasizing that markets typically resolve such issues within days.

Morningstar also examined the impact of unified versus divided government on stock performance. Historically, stocks have performed better under unified government, with average monthly gains of 1.2% compared to 0.7% under divided government.

Other financial firms reported similar trends, noting that stocks often perform better in the 12 months following a midterm election. Fidelity found that the S&P 500 gained 14.5% in the 12 months after midterms, compared to 4.9% in the 12 months leading up to them.