According to the Ichikawa Report by Ichikawa Masahiro (市川雅浩), U.S. trends surrounding the midterm elections and the Japanese stock market’s response show a tendency for weakness before the election and a recovery afterward.
The Nikkei Average recorded an average return of -3.0% in the 3 months before midterm elections, rising in 3 instances, with a probability of gains of 27.3%. By contrast, its average return in the 3 months after midterm elections was +3.3%, with gains in 6 instances and a probability of gains of 54.5%.
This pattern in the Nikkei Average is based on data from the past 11 midterm elections and shows a tendency for weakness before the election followed by a recovery afterward. Compared with S&P 500 data, the behavior differs between Japan and the United States, but both markets have been noted to share a tendency to recover ahead of election day and continue rising in the 3 months afterward.
The S&P 500 often follows a different path from the Nikkei Average, gaining 3.8% in the 3 months before elections and 5.9% in the 3 months afterward. However, both indexes tend to be weak until around 1 month before the election, recover toward election day and continue to trend higher thereafter.