With a little more than a month left before the Nov. 3 U.S. midterm elections, Wall Street is moving into what is often treated as a political trading window. Every seat in the House of Representatives will be contested, and control of the Senate is also in play, pushing investors to reassess how the next congressional setup could shape fiscal policy, regulation, and the broader policy path.
Still, the historical record does not support a simple view that midterm elections are inherently bad for U.S. stocks. In a Sept. 25 article, WHZ Strategic Wealth Advisors chief strategist James Zahansky wrote that what matters more for markets is the uncertainty ahead of the election, not the victory of one party by itself.
History shows positive average returns, but more turbulence
Data from J.P. Morgan Asset Management cited in the article shows that since 1937, the S&P 500 has posted an average gain of 9.2% in midterm election years, compared with 13.3% in other years. Midterm years have been weaker on average, but the long-run average return has still remained positive.
The more consistent pattern has been higher volatility and a tendency for gains to arrive later in the year. The article argues that attributing year-end market performance too heavily to the election risks overstating the role of politics, especially in 2026, when U.S. equities are also dealing with rate repricing, energy prices, geopolitics, and AI capital spending.
A typical pattern: weaker early in the year, stronger in the fourth quarter
Quarterly data points to a clearer seasonal pattern in midterm years. J.P. Morgan's figures show that, historically, the S&P 500 has delivered slightly negative average performance in each of the first three quarters of a midterm year, followed by an average 6.6% gain in the fourth quarter.
Separate data from Capital Group shows that since 1950, the S&P 500 has risen an average of 15.4% in the 12 months after a midterm election.
That data is often summarized as a post-election stock rally, but the article offers a narrower reading: as the election draws closer, uncertainty gets absorbed by the market and political risk premiums can decline. Once investors have better visibility on congressional control, fiscal policy, and the regulatory path, politics tends to lose some of its direct pricing power.
Historical patterns are not a trading formula
The piece also warns against turning long-term averages into a mechanical trade. In 2018, the S&P 500 fell 4.4% for the full year. In 2022, total return was down 18.1%. Both were midterm election years, yet the main forces behind those declines were Federal Reserve tightening, inflation, and rapidly rising interest rates.
That distinction matters. The fact that an election and a market decline happened in the same year does not mean the election caused the selloff.
Markets price policy paths, not party labels
Another major focus for 2026 is the possibility of a shift in congressional control. At the time the article was published, Republicans held both chambers by narrow margins, meaning even small seat changes could alter the legislative environment for the next two years.
If the White House and Congress are controlled by different parties, the most immediate consequence is usually not a clear stock-market direction. It is a more difficult legislative process. Large fiscal packages, tax changes, and parts of the regulatory agenda may become harder to pass, while congressional hearings, budget negotiations, and debt-ceiling debates could take on greater importance. The article says a divided government would more likely produce policy gridlock.
But that does not make gridlock an automatic bullish signal for equities. Capital Group's long-term data shows that the S&P 500 has recorded average double-digit returns under unified government, a split Congress, and periods when Congress was controlled by the opposition party.
The broader point is that party control alone does not explain the long-term direction of U.S. stocks. The same political arrangement can coexist with very different inflation trends, interest-rate regimes, earnings conditions, and business cycles. For markets, the crucial question is not who controls Congress, but whether a new political structure materially changes expectations for fiscal policy, regulation, and growth.
Rates and earnings remain the key drivers
This is the article's central market view. Midterm elections can influence policy expectations, but they rarely determine a full market cycle on their own. Equity valuations still come back to more direct drivers: whether corporate earnings can grow, where the risk-free rate sits, whether the economy remains in expansion, and what multiple investors are willing to pay.
That is also why historical midterm patterns need to be used carefully. The label of a midterm election year has covered very different macro backdrops over the past several decades. In 2018, markets faced Fed rate hikes and tighter financial conditions. In 2022, they were dealing with high inflation and an aggressive tightening cycle. The election date may be the same, but the macro environment can be entirely different.
So even if stocks rally again in the fourth quarter this year, the article says that move should not be attributed to the election alone. A more precise reading is that fading election uncertainty could offer a marginal tailwind, while the durability of any rally will still depend on whether fundamentals support it.
Three variables to watch into year-end
From now through the end of the year, the article says investors should focus less on a single election outcome and more on three variables.
- First, interest rates. If U.S. Treasury yields keep rising quickly, equity valuations will remain under pressure. If rate volatility eases, discount-rate pressure may also soften, creating a better valuation backdrop for risk assets.
- Second, corporate earnings. Any repeat of the historical post-election gain pattern in 2026 will still need support from earnings growth. If earnings expectations continue to move higher, the market may absorb political and macro volatility more easily. If the earnings cycle weakens, seasonality alone may not hold up the rally.
- Third, whether policy changes truly alter cash-flow expectations. Election results matter to markets not because of party labels themselves, but because they can affect taxes, fiscal spending, trade policy, regulation, and debt-ceiling negotiations, with follow-on effects for corporate profits, inflation, and rates.
The framework laid out in the article is straightforward: before the election, markets trade uncertainty; after the election, they return to trading fundamentals. Whether 2026 delivers another fourth-quarter rally will depend less on who wins on Nov. 3 and more on whether rates, earnings, and economic data continue to justify current asset prices.