A miracle is coming soon. I’m almost certain. It’s predictable — yet largely unknown. You surely don’t know it unless you read my old Forbes columns from years ago. It’s maybe 100 days away, roughly. I call it the fourth-quarter 87% miracle. When stocks rage!
Yes, I know. Worries abound, from Chinese trade wars to Italy’s politics and debt, to midterm campaign-related uncertainty, emerging markets wobbling wildly, high oil prices, and a return to anxiety over North Korea. Those fears are weighing on us now, and largely accounted for in stock prices. But my miracle isn’t.
I’ve crunched data since long before PCs arrived. Simple fact: Come hell, hill or high water, the Standard & Poor’s 500 index has been positive in 87% of the fourth quarters of all midterm election years, ever.
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It gets better. It’s also been positive in 87% of the quarters that follow — the first calendar quarter after the midterms. That’s six months running. It’s the most consistent positive streak in all history. Those six months typically render a 14% rise.
Why? Because people always fret the midterms — like they do now — and how this or that could happen that would be bad (never good). One basic rule is that markets don’t give a rat’s hindquarter about the absolute level of uncertainty. But they hate rising uncertainty and love falling uncertainty. Midterms bring falling uncertainty. Always!
It starts before the actual voting. October is routinely strong in midterm years. Why? With time, early-on wild speculation about outcomes fades as ever more individual Congressional races mature and fewer wild cards remain. Right now we haven’t even gotten past primary season, so the wild and woolly possibilities catch eyeballs and cause hysteria. That calms, then dies November 6th.
Further, the third year of a president’s term, like 2019, hasn’t been negative once since the start of World War II. And only twice since S&P 500 data began. It’s all about the rising uncertainty heading into the midterms followed by falling uncertainty after.
While the summer before midterms is below average historically, there is no reason for fear. Midterm-year third quarters have averaged 61% positive, a hair below the average of all quarters of all years. No, midterm summers aren’t super, with average returns of just 0.6%. But getting out now to try getting back in on October 1 sacrifices that positive return and adds the transaction costs of trading twice, and is too cute by half.
I’m not confident as to where stocks head immediately, but it matters little with the miracle so soon ahead. And with today’s fears so widely discussed and leading so many to conclude stocks shouldn’t shine, my wild guess would be they’re all more likely wrong than right. Yet I wouldn’t bet my future on that. But I would bet it on the 87% Miracle. I’ll take 87% odds every day.
I’m always amazed something as big and consistent as this isn’t recognized and pre-priced. Yet it’s scarcely foreseen. With current polarization between our two political parties, midterm shrillness is even more extreme than normal. That creates a perfect foundation for the miracle.
How will midterms turn out this year? I don’t really know. I’ve studied politics relative to markets for 45 years. We all know the president’s party usually loses some relative power to the opposition in midterms. That tends to move us toward gridlock. People hate gridlock. But markets love it because it reduces the risk of political upheaval.
My second best guess is the midterms are far less exciting than pundits predict. I’ll handicap my guestimates next month. With so many primaries remaining, it’s too early to assess single race match-ups with any real definition.
My very best guess is this: If you wait for clarity to emerge from today’s morass of fears, you’ll will miss the 87% miracle’s ramp-up. You should be about as fully invested as you ever would be.
Ken Fisher is the founder and executive chairman of Fisher Investments, author of 11 books, four of which were “New York Times” bestsellers, and is No. 200 on the Forbes 400 list of richest Americans. Follow him on Twitter @KennethLFisher
The views and opinions expressed in this column are the author’s and do not necessarily reflect those of USA TODAY.