Stocks Could Lead a Robust Rally This Year 2023 if Markets Follow Election-Cycle History, BofA says

bank of america by javier haro via Javier Haro Unsplash
bank of america by javier haro via Javier Haro Unsplash

Markets usually rebound after a September plunge, but stocks lead a more substantial rally in midterm-election years, according to the Bank of America. 

In a Friday research note, BofA analysts said that the month of October is positive 59.6% of the time, with average returns of 0.50%. The rest of the year is even better as November returns 0.83% and December yields 1.36%.

Bank of America

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BofA said that seasonality strengthens during midterm election years, with October in the green 65.2% of the time and returns 2.16% on average.

Midterm Novembers also outperform with a return of 2.03%, while Decembers return 1.19%, trailing the overall average Santa Clause rally of 1.36%. 

Bank of America

Furthermore, the strategists wrote that stock market gains continue into the following year’s first half. 

“The SPX is up 91% of the time (21 out of the last 23 cycles) with an average return of 16.64% (17.74% median) from the start of 4Q in the midterm year through the end of 1H Year 3 of the Presidential Cycle,” BofA said. “16 out of 23 cycles saw double-digit positive returns over this period. The last two cycles had below average positive returns, but the last time this period had a negative return was from 4Q 1938 through 1H 1939.”