Several things on the horizon can affect your portfolio. A few of them have known deadlines and another is an ongoing issue that will need attention. These are the top three for this year.
The 2022 budget
Congress recently passed (March 10th, 2022) the omnibus appropriations bill, which will replace the continuing resolution that was figuratively kicking the can down the road a bit further. This bill needs to be signed by the President, which it will likely be, by March 16th, and it includes $1.5 billion in aid for Ukraine.
There will be some political stability that the markets always like to see with this budget. There will basically be a lull in any fighting between Dem and GOP congress members that could affect Wallstreet with this knowledge. Potential congressional battles lead to our next topic, which will be the talk of most of the summer and through the fall.
The midterm election
Fortunately we have a lot of history to look at and see what the general effect on the stock market that happens with midterm elections, and it is not what most people think will happen. This historical knowledge does help if we can recognize trends and can take advantage of them.
Results for stock market performance in midterm years are not like other years, let's imagine the time before COVID-19. The 2018 year of midterms sees the Dems regain control of the House, and the GOP had just pushed its package of massive tax cuts through. The unemployment rate was below 4%; consumer confidence was the highest since the Great Recession, and there was rising business investment. Most would think a booming stock market would follow, but they would be wrong. The market fell by 6.2% in 2018, the U.S. started its trade war with China, and the Fed was raising interest rates four times that year.
So, what does actually happen to the stock markets relating to the midterms? According to data from Sam Stovall, CFRAs chief investment strategist, there are the three primary trends that seem to happen in the midterms.
- Stocks will tend to sell-off ahead of the midterm elections-Between 1945 and 2021, stocks had an average decline of 1.8% in the 2nd quarter and fell another 0.5% in the 3rd.
- There is significant market volatility immediately before and after a midterm election - This year will likely be the same, with the ongoing war in Ukraine and the possibility of Fed rate hikes. The median, standard deviation return of a midterm year's stocks is 15% (2% higher than other years). And the highest deviation quarter is Q3 of a midterm year.
- Stock markets usually bounce higher in the two quarters that follow the midterm elections-Once the markets see governmental stability again, their worries are lowered, and stocks go up.
These don't always happen, but they usually do, and it does not matter whether there is a change in house or senate control or if the existing state of affairs is maintained.
Cryptos have gained a considerable following over the past two years, seeming to have passed their tipping point (which usually happens when 8-10% of a population participates), with young and old asking which coin is worth investing?
Many crypto insiders were pleased with the President's executive order that was the first formal statement about cryptos recognizing their popularity and directing the Treasury Department to develop a regulatory plan with other governmental agencies.
Along these lines, there are two specific items to watch in the coming weeks.
These two ETFs are following suit of the first ETF that was successful in listing, the BITO ETF that began trading in Oct. 2021.
All three of these funds are for bitcoin futures, not holding the actual currency itself. However, it takes the investing world closer to easy ways for the public to invest in cryptos. The typical ETF or mutual fund investor will have options presented to them by investment advisors that they never had before. This decision could cause a resurgence of crypto investment that could take all things' blockchain higher.
All three of these ongoing events could have significant impacts on the markets. Most likely, in the short term, the budget will have a cooling effect for the end of Q1 and into Q2. But mid Q2 will see the volatility increase through Q3, until just after the election. We will hopefully then see the post-election positive trend that has been seen in years past for the coming years leading to the 2024 election. In the long term, the decisions of the SEC will likely have a massive impact on the crypto world and their continuing trend, either up or lackluster, for years to come.
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