J.P. Morgan Asset Management said in its September report, 2026 Midterm Elections, that the 2026 U.S. midterms may amplify market volatility, but they do not stand on their own as a framework for pricing U.S. equities. The firm’s central point is that rates, inflation, growth, corporate earnings and valuations still carry more weight than party control in Congress. The report’s core data run through Sept. 18, 2026.
Rather than treating the election as a simple call on which party wins, the report asks a narrower market question: how election outcomes move through policy and then into asset prices. J.P. Morgan breaks that into several layers — whether control of Congress is enough to alter the path of fiscal and regulatory policy, whether weaker performance in midterm years is really about politics or about the macro backdrop at the time, and which variables matter once political uncertainty starts to fade.
Policy transmission matters more than party labels
J.P. Morgan says investors have often leaned too heavily on headline comparisons between different party combinations in Washington and stock-market returns. Those comparisons are easy to make, but much harder to use for causal analysis.
For 2026, the report says the more useful question is what changes in congressional control would actually do to policy. If government becomes divided, room for further fiscal expansion may be more limited. Risks tied to a government shutdown in 2027 and debt-ceiling negotiations from late 2027 into early 2028 could also return as market concerns. At the same time, areas where the president has broader executive authority, including tariffs, may not shift in parallel with Congress.
The same logic applies to AI regulation. J.P. Morgan characterizes the Republican policy direction as lighter regulation with an emphasis on global competitiveness and national security. It describes the Democratic approach as placing more weight on consumer protection, labor rights, privacy and the governance of misinformation. The report also makes clear that this is a summary of policy direction under different government configurations, not a claim that specific rules will necessarily be enacted in that form.
In market terms, the key issue is not the political label itself. What matters is whether policy differences are large enough to change corporate costs, investment plans, profit margins and inflation.
Congress is close, but markets care about what policy can actually change
J.P. Morgan’s data show that the 2026 election map leaves meaningful room for a shift in Congress. As of Sept. 18, the Senate consisted of 53 Republicans, 45 Democrats and two independents who vote with the Democratic caucus. Democrats would need a net gain of four seats to take control. The House majority was also narrow.
Still, the report does not equate a change in congressional control with an automatic reversal in market logic. It focuses instead on which policy areas would be constrained and which could still move ahead.
On fiscal policy, J.P. Morgan says divided government could place tighter limits on further expansion of the fiscal deficit. If Republicans keep control of Congress, a new budget reconciliation bill could still touch defense, housing and healthcare. The report’s point is that elections affect markets through policy first, then through deficits, growth, inflation and rates — not through a direct chain of party victory to stock gains or losses.
Fiscal policy may be constrained by Congress, tariffs may not be
That distinction is especially visible in trade policy. J.P. Morgan says that under divided government, the president would still retain broad executive authority, so trade policy may not contract in any clear way just because Congress changes hands.
The report says a new round of Section 301 tariffs and discussions tied to the USMCA have returned to the policy agenda. As of Sept. 18, the effective average tariff rate on U.S. consumer-goods imports stood at about 10.6%.
In other words, a shift in Congress may have a clearer effect on fiscal legislation than on tariff policy. Regulation could show a more direct split, but even there, the market impact depends on whether policy changes feed through to company-level economics and the broader inflation outlook.
Midterm years have been weaker on average, but that does not prove elections caused the drop
J.P. Morgan spends considerable time separating correlation from causation in the historical record. Since 1937, the S&P 500 has delivered an average total return of about 9.2% in midterm election years, below the 13.3% average in non-midterm years. Realized volatility has also been higher in midterm years.
On the surface, that can look like evidence that midterms are bad for stocks. The report argues the conclusion is too simple. Midterm years often overlap with larger macro shocks that do more to explain market performance.
In 2018, the S&P 500 posted a total return of about -4.4%. In 2022, the figure was about -18.1%. Both were midterm years, but J.P. Morgan ties the pressure mainly to Federal Reserve tightening. The same caution applies to 2002, another weak midterm year, when markets were still adjusting after the collapse of the tech bubble.
That is why the firm says historical data can show that markets tend to be more volatile during election periods, while still falling short of establishing a stable election-to-market causal chain. In its reading, the economic backdrop usually explains more than the political backdrop.
The clearer historical pattern is weaker first three quarters and a stronger fourth quarter
If there is a recurring feature in midterm years, J.P. Morgan says it is more visible in the intra-year pattern than in the annual average. Looking at the 1982-2022 midterm cycle, the report finds that the S&P 500’s average price return in the first, second and third quarters of a midterm year was about -0.5%, -0.6% and -0.1%, respectively. In the fourth quarter, the average rose to +6.6%.
The firm also examined the 100 trading days around Election Day and found that market improvement has often started before the vote, not after it. In many cases, the turn began less than a month before Election Day.
J.P. Morgan interprets that pattern as a decline in uncertainty. Before the election, markets have to price several policy paths at once. As the vote approaches, the range of plausible outcomes narrows, and the uncertainty premium tied to the election begins to fade.
The report does not present this as a forecast for 2026. It treats it as a historical tendency. It also points to 2002 as a clear counterexample: even after the election, pressure from the post-tech-bubble fundamental backdrop outweighed any relief from reduced political uncertainty. Elections can remove one source of unknowns, the report says, but they do not end the economic cycle.
For 2026, inflation and rates remain the more direct market variables
J.P. Morgan says this framework is especially relevant in the current year. In August, U.S. CPI rose 3.4% from a year earlier, while core CPI increased 2.4%. Gasoline prices rose 3.9% month on month and accounted for more than one-third of the monthly increase in headline CPI. The report therefore puts energy prices, household affordability and inflation back at the center of the macro discussion.
The Federal Reserve then raised rates by 25 basis points at its September meeting, taking the policy range to 3.75%-4.00%. In the latest economic projections, the median FOMC estimate for the federal funds rate at the end of 2026 was 4.1%. The same set of projections put full-year PCE inflation at 3.7% and core PCE at 3.4%.
J.P. Morgan also said that, in data as of Sept. 18, markets had already begun to price in the possibility of another rate increase before year-end. That leaves the 2026 midterms in a market setting shaped by two forces at once: possible changes in fiscal, trade and regulatory paths tied to congressional control, and a repricing in inflation and monetary policy that is already underway.
The second channel is more direct for broad equity indexes because it feeds straight into the risk-free rate, valuation discount rates and corporate financing costs.
J.P. Morgan’s bottom line
The report’s bottom line is straightforward. Midterm elections can create extra volatility and can alter some policy constraints, but politics by itself is not an independent asset-pricing framework.
For an election result to matter in a lasting way, it has to change fiscal policy, trade policy or regulation enough to affect inflation, rates, growth or corporate earnings. That is why J.P. Morgan says the more useful things to watch next are not a single poll or a seat count on its own, but whether energy prices and inflation ease, whether the Fed’s rate path is revised higher again, how much fiscal room remains after the election, and whether tariff and regulatory changes actually enter earnings expectations.
In that sense, the report is not only about the 2026 U.S. midterms. It is also about a broader market question: when politics dominates the headlines, investors still need to identify the transmission mechanism that can change fundamentals.