Experienced investors know that politics and Wall Street often intersect. Compounding that issue in the near term is this year's status as a midterm election year. No candidates or parties are being endorsed here; the "stump speech" is about why investors of all experience levels should be students of market history.
Rookies and experienced investors alike may find it easier to stay the course with exchange-traded funds (ETFs) such as the Invesco QQQ ETF (NASDAQ: QQQ) and the Vanguard S&P 500 ETF (NYSEMKT: VOO). This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia.
For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue » On multiple levels, history bodes well for the Invesco fund and the VOO ETF. One of investing's oldest (and frequently proven accurate) sayings is: "History doesn't always repeat, but it often rhymes." So let's talk history.
Since 1957, the S&P 500 has notched average annual returns of 10%, confirming the benefits of long-term investing. However, history also says that of the four years in the presidential cycle, the midterm election year is the worst for stocks. In those years, the S&P 500 averaged a gain of just 4.9%, or less than half the historical average.
But even when accounting for that somewhat ominous history, the QQQ ETF and its Vanguard S&P 500 counterpart are up 19.5% and 14.7%, respectively, year to date. Under any circumstances, those are impressive showings, and they confirm the validity of not pulling out of stocks due to electoral headlines. But the returns delivered by the Invesco and Vanguard ETFs this year are all the more noteworthy when you consider that midterm election-year lethargy for stocks isn't a new phenomenon.
In financial market terms, it's almost ancient. Since 1950, the midterm year has, on average, been the one in which stocks delivered the smallest gains or worst performance. A lot can change between now and November, but with equities defying midterm-election-year precedent, it's clear that stocks are in a strong position.
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