Don’t Miss the Midterm Election Year Rally
Stocks have been hostage to geopolitical headlines.
Financial conditions are tightening as rising oil prices push up interest rates and the dollar.
Thankfully, visibility on a credible offramp to the Iran conflict seems to be gradually emerging.
It’s been a tough market, but the good news is market volatility always creates great buying opportunities.
The key is simple.
Don’t miss the midterm election year rally that’s coming.
Turns out there are big, repeatable patterns in midterm years.
Today we’ll analyze history to see how to successfully handle equity drawdowns.
Then, we’ll dive deeper into the presidential cycle to show you a novel way to profit from midterm election year volatility.
Finally, we’ll wrap up with sectors and stocks seeing the biggest institutional inflows to overweight now.
Annual Drawdowns are Normal so Don’t Panic
With market uncertainty off the charts, it’s very easy to throw in the towel and sell everything.
History suggests that’s a big mistake.
Since 1980, the S&P 500 has averaged 10% annual gains despite suffering through average annual peak-to-trough drawdowns of 14% (chart).
Clearly, the current market drawdown falls right in line with historical tendencies.
Diving further, we could be on the cusp of a fat rally in the months ahead.
Don’t Miss the Midterm Election Year Rally
Midterm election years don’t have a great track record.
They’re by far the weakest in the four year Presidential cycle, averaging just 5.8% total returns since 1926 (chart).
Worse yet, they’re more volatile than other years, averaging punishing 16% intra-year drawdowns.
But that’s only half the story.
Midterm year weakness and volatility are very front-end loaded.
The S&P 500 tends to be very choppy for the first 9 months of midterm years, averaging modest 1% declines.
But here’s what the crowd misses: Q4 typically sees huge gains once election uncertainty recedes.
Since 1926, the S&P averages juicy 7% ramps in the fourth quarter of midterm years with 88% positivity:
This is the rally to prepare for.
Better yet, markets rebound off midterm year lows and last well into the following year.
Since 1950, the S&P 500 averages a 36% 1-year forward return off its midterm year lows (chart).
In short, it’s worth buying the dips:
Just make sure you’re in the right place.
What This Means for Your Portfolio
HALO (heavy asset, low obsolescence) stocks remain leadership (chart).
Energy was the only sector higher in March and is the big winner YTD. Materials, utilities, industrials and staples are also outperforming nicely YTD.
On the flip side, asset light, software-heavy, service business models found primarily in the tech, communications, financials and discretionary sectors lag badly on geopolitical and AI disruption fears.
MoneyFlows sector rankings mirror these themes with the HALO-heavy energy, utilities and materials sectors on top at the expense of the asset-light financials, discretionary, communications and technology sectors:
The rotation caught many off guard.
MoneyFlows was quick to the trend as institutional investors often move EARLY.
That’s how you outperform!
Today’s equity list focuses on our top 20 outliers in HALO sectors. Inflows have been constant, powering many of these names higher and higher.
Our data is built to find the outlier stocks ahead of the crowd.
To get access and make even more from this call to action, sign up for a PRO membership.
You’ll get our proprietary indicators and learn how our unique money flow approach finds outlier stocks early. Give it a shot!
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Be early next time.
Go with the flows!
HALO continues to work in 2026.
Below are the 20 strongest stocks with big money activity: