These things will drive the stock market this year

The stock market loves the period after the midterm elections, but that might not be the case in the wake of this year's Nov. 8 election.

According to Yahoo Finance Live, a lot of things will drive the stock market, said Gargi Chaudhuri, head of iShares investment strategy at BlackRock Americas. I don't want to base my decision on the Fed and elections only. If you give me a hawkish Fed and a divided government, I think it is going to be hard for the equity market to make new highs or get back to levels that we had seen for maybe in the second quarter of this year. The S&P 500 index GSPC has always outperformed in the past 12 months after a midterm election with an average return of 16.3%, according to the data from the U.S. Bank. The last time the S&P 500 produced negative returns in the year following a midterm election in 1939 was in 1939.

The backdrop for stocks this time around remains rocky.

It is going to be very difficult for the stock market to have the rallies that we saw in the first two days of October, according to Chaudhuri.

The Federal Reserve is on a mission to stomp out inflation by forcefully jacking up interest rates. Such a hawkish policy stance from the Fed has rippled across a wide range of asset markets, from the rising U.S. dollar to rising mortgage rates nearing 7%.

The Dow Jones Industrial Average DJI S&P 500, and Nasdaq Composite IXIC remain stuck in double-digit percentage declines for the year despite impressive rallies in the first two trading days of October. The shares of big-name tech companies, such as Meta META and Netflix NFLX, are down close to 60% on the year as investors take profits from higher-risk stocks.

Oil prices have started to go up again after OPEC announced it would cut output. It has caused a major headwind to corporate profits.

I think we need to see a fundamental shift in the earnings picture, where earnings growth is very healthy across all sectors, and I don't see how that happens when we have an economy that is slowing down because the Fed wants it to. You can follow Sozzi on Twitter and LinkedIn.