StocksIt's no secret stocks have been languishing for months. The market suffered its worst August since 2005, leaving the S&P 500 ($INX) off 5% on the year. It's also no secret the November mid-term elections are likely to be especially bitter, given that unemployment remains persistently and perniciously high.

But it just so happens that stocks have a history of posting impressive gains in the fourth quarter of a mid-term election year, notes Jeffrey Kleintop, chief market strategist at LPL Financial. Furthermore, Kleintop sees a number of potential catalysts tied to the mid-terms that could boost shares. From an October Surprise to gridlock in Washington, D.C., there's a host of outcomes that could cause equity investors to celebrate.

Among the more interesting potential catalysts related to the mid-term elections is the possibility of a so-called October Surprise unveiled by the Democratic party in order to save incumbent seats on Nov. 2. As Kleintop told clients in a report this week: "Incumbents are in trouble according to state and regional polling data. In seeking to turn the tide of voter sentiment, [Democrats] may talk about tax cuts or other issues favorable to stock market investors."

Then there's the very real possibility that the mid-terms will end with neither party having enough votes in congress to get anything of substance done quickly -- if at all, Kleintop writes.

"The balance of power is likely to shift between political parties following the elections," says Kleintop. "This may lead to more of a political balance in Washington and slow the pace of legislative change resulting in the 'gridlock' the market has historically favored."

Another mid-term election effect that really stands out the market's historical pattern. Stocks have actually tracked a typical pattern for equities in a mid-term election year, Kleintop notes, albeit with more volatility than usual. That bodes well because the market has averaged a gain of nearly 8% during the fourth quarter of mid-elections years going back to 1950.

If past results are indeed indicative of future returns, stocks would reverse course in the next couple of months to end the year with single-digit-percentage gains, Kleintop says. For a look at the S&P 500's fourth-quarter performance in mid-term election years, see the chart below, courtesy of LPL Financial and Bloomberg.


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Mike

but i'm just a poor working stiff, how will the stock market climbing benefit me

September 01 2010 at 1:51 PM Report abuse rate up rate down Reply
mitch rochelle

let see 700 billion for a war in iraq and 1.3 trillon for a tax cut for the top 2% thats what the repubs stand for. if you want more of that vote repub in nov. lets not forget the donut hole in social security of 6.5 trillons that the repubs voted for, that they did not pay for.

September 01 2010 at 11:10 AM Report abuse rate up rate down Reply
1 reply to mitch rochelle's comment
jpclarksville

And let's not forget that the dems refused to listen to warnings about Fannie and Freddie, tightening FCC rules, voted for Obamacare so they could figure out what was IN the bill, don't READ bills because they HIRE lawyers to do that. WHY are they in office if they are outsourcing their jobs? Vote democrat if you want to continue subsidizing irresponsible behavior, unions, bailouts and entitlements for illegal aliens.

September 01 2010 at 11:13 AM Report abuse +1 rate up rate down Reply
mitch rochelle

or we can have repubs start a war on the theory of wmds.

September 01 2010 at 10:32 AM Report abuse +1 rate up rate down Reply
jhooperaa

Do not put anything past Rahm Emanuel and the Democrats when it comes to the November election. Maybe Obama will do what Clinton did when the going got tough. Bomb an aspirin factory in the middle east. LOL

September 01 2010 at 10:22 AM Report abuse +1 rate up rate down Reply
mitch rochelle

only the rich and the lemmings vote repulicans. the people with no memory of what gwb did to the middle class in this country.

September 01 2010 at 10:19 AM Report abuse rate up rate down Reply
4 replies to mitch rochelle's comment
Susie

Republicans are holding up the small business jobs bill. Republicans are holding up a clean energy jobs bill. Republicans want America to fail. WHO VOTES for these people???

September 01 2010 at 10:12 AM Report abuse rate up rate down Reply
4 replies to Susie's comment
jkennedy806

oH dANNY, i SEE you are writing your journalistic masterpieces from FantasyLand again. Let me see the October surprise came in 1987 on Black Monday Remember!!! Then the US had one in 2007 and 2008 which lost the elections for the republicans. Bringin' home the brave soilders (and I know a few whose Moms and Dads well be relieved) is a political ploy -- AND where are these brave Americans gonna get jobs -- NEED FREAKIN JOBS -- REMEMBER IN NOVEMEBER

September 01 2010 at 9:25 AM Report abuse +5 rate up rate down Reply
mrsacma59

We need a civil war!

September 01 2010 at 9:10 AM Report abuse +3 rate up rate down Reply
1 reply to mrsacma59's comment
ingfp

You are not far off base unless we have some real CHANGE!

September 01 2010 at 9:20 AM Report abuse +2 rate up rate down Reply
Susie

Republicans are going to lose big again in November. There aren't enough wealthy people who vote republican to make a difference.

September 01 2010 at 9:02 AM Report abuse rate up rate down Reply
3 replies to Susie's comment
Randy

The first step for getting this country back on track and back to its core priciples will be to remove the Anti-American Borat O'Bama from office. However, he is only a part of the problem. The real problem is those people who were stupid or foolish enough to entrust the Presidency to someone like O'Bama in the first place!

September 01 2010 at 8:46 AM Report abuse +6 rate up rate down Reply
1 reply to Randy's comment
ingfp

Randy , don't belittle Borat for Heavens sake!

September 01 2010 at 9:23 AM Report abuse +1 rate up rate down Reply