On Sunday, JC made another compelling case that the best time to buy stocks is right now.
That’s because we’re in a stretch of the four-year presidential cycle that has historically favored stocks.
And that left me wondering…
If stocks tend to perform well after midterm elections, is there one part of the market that has consistently performed even better?
So, I went back through every midterm election since 2002 and compared the performance of the nine major S&P 500 sectors over the following 12 months.
And one sector stood above the rest…
Technology (XLK).
Technology was positive after all six midterms… gaining an average of 20.11% over the following 12 months.
That alone is impressive.
But here’s what really caught my attention…
Technology (XLK) vs the S&P 500 (SPY)
Technology beat the S&P 500 following all six midterms studied…
The closest gap came after the 2010 midterms, when Technology gained 5.90% vs 5.25% for the S&P 500.
But in three other cycles – 2002, 2018, and 2022 – the difference wasn’t even close:
Of course, six election cycles is a small sample size. But it’s the cleanest comparison I could make, since the sector ETFs didn’t launch until 1998.
It’s worth noting that two of Tech’s biggest years came after significant selloffs, giving the sector a lower starting point from which to rebound.
But even if we remove 2022, the strongest Technology return in the study… Tech still averaged 15.2% over the other five midterm windows. The S&P 500 averaged about 7.8%.
And that’s worth paying attention to.
Looking back across all nine sectors, Technology finished with the highest average return… ahead of Consumer Discretionary (XLY) at 12.12%, Industrials (XLI) at 8.66%, and Materials (XLB) at 8.18%.
Financials (XLF) was the weakest sector over the 12 months following each midterm.
History Gives Us Something To Watch
Since SPY launched in 1993, the S&P 500 has ended higher 12 months after every midterm election…
That’s eight straight cycles.
Will it happen again? Nobody knows.
But after digging through the data, one thing is clear…
The S&P 500 has done well historically following midterms… and Technology has beaten it six times in a row.