Macro/markets seasonality: Historically, the S&P 500’s 12 months after U | Nomad Investor

The post‑election window is in sight, and the Nomad Investor Wealth Playbook is turning its lens to a familiar seasonal tailwind: the 12 months after U.S. midterms have historically been strong for equities. But this cycle looks different. We have an AI equity drawdown testing investor conviction, a P/E reset below 5‑ and 10‑year averages, pressure in semiconductors, and a volatility term structure flashing cross‑currents. The focus keyphrase here — post‑election window — matters because it often rewards disciplined capital deployment, yet today’s setup requires sharper risk controls and factor discipline than usual.

We are seeing valuations compress even as earnings breadth improves, a rare and ultimately constructive combination if a soft‑landing base case holds. For Australian investors, the ASX’s correlation to U.S. risk remains high through resources cyclicality and a growing local tech cohort, while RBA policy and a soft consumer complicate the mix. This is not a time for hero trades; it’s a time to rebalance into diversified quality and cyclicals that benefit from disinflation and a durable growth pulse, while keeping dry powder for further tech volatility. That is the essence of the Nomad Investor approach: move with the seasonality, not because of it.

In short, use the post‑election window to express higher‑conviction tilts — quality, cash‑rich cyclicals, and low‑vol defensives — and scale into AI and semis on weakness, not euphoria. The cycle is inviting, but the path will be choppy.

What’s Happening in the Post‑Election Window

Historically, the S&P 500’s 12 months after U.S. midterms have delivered robust returns as political uncertainty resets and policy gridlock reduces tail risk. Since 1950, the average 12‑month return post‑midterms has been roughly 15%–16%, with positive outcomes in most cycles. Seasonality aside, today’s market is digesting three live issues: a valuation reset, fractured tech sentiment, and a kinked volatility term structure.

Start with valuations. The S&P 500 forward P/E has eased to around 19x–20x, below last year’s peak and now under both the 5‑year (circa 21x) and 10‑year (circa 19.5x–20x) averages. This moderation is meaningful because earnings expectations have stabilised rather than collapsed. Earnings breadth — the share of companies beating expectations or guiding positively — has broadened from mega‑cap led to more mid‑cap and cyclical participation, especially in industrials, travel, and parts of healthcare.

Technology is the tension point. AI leaders have suffered chunky drawdowns from the highs — many marquee names are off 15%–30% at various points this year — revealing a “crisis of confidence” in semiconductors despite a robust secular demand story. Capital spending plans from hyperscalers remain elevated, and deployment cycles in data centres, networking, and power infrastructure suggest multi‑year tailwinds. Yet investors are pushing back on near‑term capital intensity, supply bottlenecks, and inventory management, especially in memory and speciality logic.

Volatility adds nuance. The Nasdaq‑100 volatility complex has seen front‑month implieds spike during AI downdrafts, while the back end of the curve remains anchored — a classic contango that rewards disciplined premium selling but can reverse quickly. In the S&P 500, implied volatility has been directionally subdued versus realised, even as single‑stock vol stays punchy around earnings and AI‑themed catalysts. This mix argues for staggered entries and factor hedges rather than all‑in exposure.

Australia remains tightly linked. The ASX 200’s rolling 90‑day correlation to the S&P 500 often tracks 0.6–0.8 in risk‑on phases, though resources and banks introduce idiosyncratic performance. The S&P/ASX 200 (XJO) multiple, hovering near 15x–16x forward earnings, trades at a discount to the S&P 500, reflecting sector composition and lower structural growth. Forward EPS revisions on the ASX have stabilised, helped by miners with disciplined capex and banks holding margins as the RBA balances sticky services inflation with a cautious growth outlook.

The Data Behind the Story: Post‑Election Window, Valuations, and Breadth

Let’s quantify the setup. Seasonality is not a guarantee, but it is a context setter that often intersects with earnings cycles and liquidity dynamics. Combining that with valuation and breadth data clarifies the risk‑reward.

• Since 1950, the S&P 500 has been positive in 12 of the last 13 post‑midterm 12‑month windows, with average returns near the mid‑teens. Even after volatile elections, the following year often brings a volatility compression and multiple expansion.
• The S&P 500 forward P/E recently reset to about 19x–20x, below the 5‑year average (~21x) and near the 10‑year average (~19.5x–20x). That’s a shift from valuation headwind to neutral/tailwind, provided earnings hold.
• Earnings breadth improved: in the latest reporting season, over 70% of S&P 500 companies beat EPS estimates and roughly 60% beat on revenues, while forward guidance skewed modestly positive.
• Nasdaq‑100 volatility saw front‑month implieds jump into the low‑to‑mid 20s during tech selloffs, while the 3‑ to 6‑month tenors stayed in the high teens — a term structure that still favours mean reversion, but with event risk.
• ASX 200 forward EPS revisions have turned from net negative to flat‑to‑slightly positive over the past quarter, with resources stabilising and banks resilient. The XJO forward P/E sits near 15x–16x, below the S&P 500’s, reflecting cyclicality and lower tech weighting.

Semiconductors merit special attention. The sector is straddling a short‑term confidence wobble and a long‑term secular upgrade cycle. On one hand, order visibility has clouded in select end‑markets, and power constraints in data centres have slowed some deployment timelines. On the other, AI training, inference at the edge, and high‑bandwidth memory are re‑architecting compute, networking, and energy ecosystems. As a result, drawdowns of 20%–35% in quality chip names are increasingly opportunities for staged re‑entry, not exits — but only with position sizing and cash buffers to respect ongoing volatility.

Volatility term structure is the market’s breath. Today, we see shallow contango in index vol but higher kurtosis in single‑names. That means broad indices can grind higher while idiosyncratic shocks stay frequent. For DCA investors, this is perfect: deploy on a timetable, accelerate on drawdowns, and avoid lump‑sum bets at local peaks.

What This Means for Investors in the Post‑Election Window

Here is the portfolio roadmap. The post‑election window historically provides a rising tide, but this one lifts boats at different speeds. A soft‑landing base case — inflation drifting lower, policy easing cautious, growth slowing but not stalling — supports a barbell: quality compounders and cyclicals with balance sheet strength.

First, emphasise quality and low‑volatility factors. Quality screens — high return on invested capital, low leverage, strong free cash flow — outperform when growth moderates and rates plateau. Low‑volatility exposures help smooth equity path risk while letting you stay invested through chop. Add dividend growth as a stabiliser against earnings noise.

Second, lean into cyclicals with leverage to a soft landing. Industrials with exposure to automation, energy infrastructure, and travel demand can compound if capex cycles persist. Select financials benefit from term premia normalisation even as net interest margins drift. Energy and materials should see tailwinds from disciplined supply and infrastructure upgrades tied to electrification.

Third, treat AI and semis like high‑beta growth — essential, but size with intent. Dollar‑cost averaging (DCA) works best here. Set bands for scaling: for instance, add tranches at 10%, 20%, and 30% drawdowns from 52‑week highs for pre‑qualified names with durable moats. Use quality or profitability filters to avoid speculative trapdoors.

Fourth, manage volatility actively but simply. The Nasdaq‑100 volatility curve favours covered calls on strength and cash‑secured puts on panic spikes, assuming suitability. For most investors, factor tilts and periodic rebalancing capture 80% of the edge without option complexity.

For Australian investors, there are three practical tilts. One, maintain resources exposure as a global growth proxy — especially diversified miners with balance sheet discipline and exposure to copper, lithium, and high‑grade iron ore. Two, round out with ASX‑listed quality tech and healthcare for structural growth, acknowledging higher idiosyncratic risk than U.S. peers. Three, keep an eye on the banks: credit quality remains robust, but slower housing turnover and competition on deposits cap upside; treat them as income anchors rather than growth engines.

Superannuation settings can reinforce discipline. For accumulation accounts, set automated DCA into a mix of Australian equities (with quality tilt), global developed ex‑Australia (capturing U.S. quality and cyclicals), and a small dedicated sleeve for global tech innovation. In pension phase, pair equity risk with investment‑grade credit and short‑duration bonds as a volatility buffer, mindful of RBA rate path sensitivity on AUD and income streams.

The Data Behind the Story: Sector Map, Valuation, and Correlation

The resources‑versus‑tech axis drives Australia’s cycle sensitivity. Resources link the ASX to global PMI momentum and China’s policy cadence, while tech and healthcare provide growth ballast. Valuation and earnings revision dynamics outline the opportunity set.

Correlation matters for risk budgeting. The ASX’s beta to the S&P 500 increases in risk‑on periods, but resources can decorrelate on China stimulus or commodity‑specific shocks. Conversely, AUD tends to behave as a risk proxy; a stronger AUD can mute offshore equity returns for unhedged investors, and vice versa. Consider partial currency hedging for global equities to manage AUD swings around RBA decisions and U.S. rate expectations.

What This Means for Investors — Implementation Playbook

Translate the thesis into trades and policy. Start with allocation bands, then DCA cadence, then risk controls.

• Core equities: 50%–65% of risk assets for balanced investors. Tilt 60% to quality/low‑vol screens; 40% to cyclicals (industrials, energy, materials) geared to soft‑landing growth.
• Tech/AI sleeve: 8%–15% within equities. DCA monthly; add 1.5x during 10%–20% drawdowns. Focus on cash generative AI platform and picks‑and‑shovels beneficiaries (semis equipment, power, interconnect).
• Australia tilt: Maintain 30%–40% home bias in equities for franking credits, but supplement with global quality to diversify concentration in banks/resources.
• Fixed income: 25%–35% of portfolio. Blend short‑to‑intermediate investment‑grade, with 10%–20% of FI in high‑quality credit to harvest spread premia.
• Alternatives/real assets: 5%–15% across listed infrastructure and commodities beta to hedge inflation tail risk.

Use rebalancing in the post‑election window to reset to target bands. Quarterly or semi‑annual is fine; add a 5% drift trigger per sleeve. This maintains discipline when AI headlines and single‑stock shocks tempt reactive behaviour.

Tax and structure matter. For Australian super, consider index core with satellite tilts via low‑fee ETFs: quality, low‑vol, global semis, and resources. Keep an eye on distribution timing around 30 June to manage tax in accumulation versus pension phase.

Key Risks to Watch in the Post‑Election Window

• Policy and inflation surprise: A stickier U.S. services CPI or a wage re‑acceleration could delay Fed easing, pushing real yields higher. That compresses growth multiples and pressures tech‑led indices.
• Earnings wobble: If forward guidance softens in Q4 and Q1, breadth could narrow again, undermining the valuation support. Watch S&P 500 operating margin commentary and ASX 200 forward EPS revisions.
• Semis supply‑demand mismatch: Overbuilding capacity or delayed data‑centre power buildouts could extend drawdowns. Inventory corrections in memory or specialised logic would hit cyclicals hard.
• China and commodities: A weaker‑than‑expected China recovery or policy missteps could drag iron ore, copper, and LNG, denting ASX resources and AUD, while boosting imported inflation risk.

Nomad Investor Takeaways

• Lean into the post‑election window with quality and low‑volatility tilts; seasonality aligns with a valuation reset and firmer breadth.
• Barbell portfolios: pair quality compounders with disciplined cyclicals in industrials, energy, and materials geared to a soft landing.
• DCA into AI and semis; pre‑set drawdown bands and keep 10%–15% dry powder to buy volatility, not chase it.
• For Australians, balance resources exposure with global quality and selected ASX growth; treat banks as income anchors.
• Manage currency: partial AUD hedging can stabilise offshore equity returns as RBA and Fed paths diverge.
• Rebalance quarterly with drift triggers; factor tilts do the heavy lifting without complex derivatives.
• Respect risks: inflation surprises, earnings slippage, semis cycle bumps, and China volatility can all hit before year‑end.

The post‑election window is not a silver bullet. It is a probabilistic tailwind that works best when paired with better valuations, broader earnings, and disciplined factor tilts. Right now, we have all three — plus a technology complex that is volatile for the right long‑term reasons. Use it. Build quality. Accumulate cyclicals sensibly. Keep cash ready. That is how the Nomad Investor compounds through uncertainty.

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Nomad Investor

Paul Ingersole

Nomad Investor

Global investing and wealth-building insights for the location-independent entrepreneur.