Stock Market Enters the Worst Part of the Year. What Happens Next.

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Texans headed to the polls on March 1 to vote in the state’s first primary of the 2022 midterm election season.

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The summer of the stock market’s discontent might have started early, with a negative first quarter that perhaps anticipated the May-to-November stretch that historically is the worst six-month period for equity investors.

Next month also begins the half-year ahead of the midterm elections, the weakest six months for stocks in the presidential cycle. And the worst of these have come during the first term of Democratic presidents, according to the Stock Trader’s Almanac.

And that’s before considering the expected further tightening of Federal Reserve policy.

Given all those negatives, you’ll probably forgive a positive spoiler alert. This lousy half-year stretch historically has been prologue to the best six months of the quadrennial political cycle.

The hoary phrase “Sell in May and go away” sounds like something from the Farmer’s Almanac. But looking back to 1926, the

S&P 500 index
has averaged just a 2.2% May-October total return in the second year of a presidency, writes Doug Ramsey, Leuthold’s chief investment officer, in the firm’s April report, known as the Green Book to Wall Street pros. That made it the worst half-year for stocks. In stark contrast, the subsequent November-April period, stretching into the third year of a president’s term, was far and away the best, averaging a 13.9% return.

For small-capitalization stocks, the pattern is even more pronounced: A 2.5% average May-October decline in the midterm year was followed by an average 19.2% surge from November to April, Leuthold data show.

Looking at more recent history, Strategas Research Partners’ Washington team, led by Daniel Clifton, found that stock selloffs since 1962 have tended to be bigger in midterm election years. When there were…

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