Historical data shows that the Nikkei tends to rise toward year-end after U.S. midterm elections, with a correlation to U.S. equities also noted. Past data also shows that the Nikkei’s gains are limited when the incumbent administration loses.
By presidential election cycle, the Nikkei’s average monthly returns show that the average gain in October of a midterm-election year is relatively low at 0.20%, indicating a tendency for investors to hold back on buying ahead of the election. Political uncertainty is cited as the background.
From November of a midterm-election year, the Nikkei shows a pronounced tendency to rise toward year-end. An analysis shown in Chart 2 indicates an average November gain of 2.92% and a cumulative gain of 9.79% through March of the following year.
A similar post-midterm-election stock-market anomaly has been observed in U.S. equities. The Dow Jones Industrial Average’s cumulative gain from November through March reached 8.74%, suggesting that its movements may be correlated with Japanese equities.
In cases where the incumbent administration loses, the Nikkei’s cumulative gain from November through March is limited to 0.29%, while gains tend to be larger in other cases, as shown in Chart 4.
Whether Republicans can retain their House majority could be an important inflection point for stock-market movements after the next midterm elections. Historical data shows that Nikkei gains were restrained in cases involving a loss.