The Bank of Canada’s rate hikes, galloping inflation despite plunging housing prices, fading commodity tailwinds - these and more have commentators shrieking recession looms, dooming the TSX. Think again. Why? An unfathomed catalyst should soon bring sweet relief: November’s U.S. “midterm” congressional elections. Those raucous contests voters hate deliver a form of Canadian stock market magic - gridlock - and it brings do-nothing governments, which stock markets love. Particularly in Canada.
Since 2021, razor-thin margins let President Joe Biden’s Democrats pass big spending and regulatory bills. November’s midterms should squash that. Consider: Democrats’ nine-seat House of Representatives edge is historically tiny. All 435 House seats are up in November, and the president’s party routinely loses seats to the opposition party. Presidents that have below average popularity, like President Biden, lose on average 38 seats.
That rally rolls on: returns average 6.6 and 5.5 per cent in the ensuing two quarters, with 87.5 per cent of each positive. Midterm magic! Hence, there hasn’t been a negative third year of a president’s term since 1939 - and it was only down 0.9 per cent.
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