With a little more than a month left before the Nov. 3 U.S. midterm elections, markets are entering what is often treated as a political trading window. Every seat in the House of Representatives is up for election, and control of the Senate could also shift, pushing investors to reprice possible changes in the structure of Congress, fiscal policy, regulation and the broader policy path.
History, though, does not show midterms as an automatic bearish event for U.S. stocks. Data cited from J.P. Morgan Asset Management show the S&P 500 has gained an average of 9.2% in midterm election years since 1937, versus 13.3% in other years. Returns have been weaker on average in those election years, but still positive overall. The clearer pattern is not outright decline. It is higher volatility and a market advance that tends to arrive later in the year.
James Zahansky, chief strategist at WHZ Strategic Wealth Advisors, wrote in a Sept. 25 note that the real market effect of a midterm election comes more from pre-election uncertainty than from one party winning. As the outcome becomes clearer, the political risk premium may ease, and the market can shift its focus back to rates, corporate earnings and the economic cycle.
That distinction matters even more in 2026. U.S. equities are already dealing with several moving parts at once, including rate repricing, energy prices, geopolitics and AI capital spending. In that setting, treating any year-end rally as a direct result of the midterm vote risks overstating the election’s explanatory power.
A typical midterm pattern: softer first three quarters, stronger fourth quarter
The article says seasonality tends to stand out more clearly in midterm years.
J.P. Morgan’s figures show the S&P 500 has historically posted slightly negative average performance in each of the first three quarters of midterm election years, followed by an average 6.6% gain in the fourth quarter. Capital Group data show that since 1950, the S&P 500 has risen an average of 15.4% in the 12 months after a midterm election.
Those numbers can easily be read as a simple “stocks rise after elections” story. The article takes a narrower view: as the vote approaches, uncertainty is gradually absorbed by the market, and the risk premium tied to politics may decline. Before the election, investors have to price possible outcomes for congressional control, fiscal policy and regulation. Once those variables become clearer, political uncertainty itself tends to matter less for asset prices.
Still, historical patterns are not a formula. In 2018, the S&P 500 fell 4.4% for the full year. In 2022, total return fell 18.1%. Both were midterm years, yet the main market drivers were Federal Reserve tightening, inflation and a rapid rise in interest rates. The article’s point is straightforward: the fact that elections and market declines happened at the same time does not mean the election caused the decline.
Markets trade policy paths, not party labels
Another focus in the 2026 election cycle is the possibility that control of Congress changes hands. At the time the article was published, Republicans held both chambers by narrow margins, meaning even small seat shifts could alter the legislative environment for the next two years.
If the White House and Congress end up under different parties, the most immediate effect is usually not a clear call on stock direction. It is a harder path for policy execution. Large fiscal packages, tax changes and parts of the regulatory agenda may become more difficult to pass. At the same time, congressional hearings, budget negotiations and the debt ceiling could carry more weight. The article says a divided government would more likely produce policy gridlock.
That still does not make gridlock an equity-positive signal on its own. Capital Group’s long-run data show the S&P 500 has delivered double-digit average returns under unified government, a split Congress and periods when Congress was controlled by the party opposing the president.
The takeaway is that party control, by itself, does not explain the long-run path of U.S. stocks very well. The same political structure can coexist with very different inflation trends, rate settings, earnings cycles and macro conditions. For markets, the key question is not who controls Congress. It is whether the new political arrangement changes expectations for fiscal policy, regulation and growth in a meaningful way.
Rates and earnings matter more than the election
The central market view in the piece is that midterm elections can shape policy expectations, but they rarely determine a full market cycle on their own.
Equity valuations ultimately come back to a small set of more direct variables: whether corporate earnings are growing, where the risk-free rate sits, whether the economy remains in expansion, and what valuation multiple investors are willing to pay.
That is also why historical midterm patterns need to be used carefully. Over the past several decades, the label “midterm election year” has covered very different macro backdrops. In 2018, the market faced Fed rate hikes and tighter financial conditions. In 2022, it faced high inflation and an aggressive tightening cycle. The election date may have been the same type of event, but the surrounding environment was not.
So even if stocks stage another fourth-quarter rally this year, the article argues that the move should not be attributed to the election alone. A more reasonable reading is that fading election uncertainty may offer a marginal tailwind, while the durability of any rally still depends 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 pay closer attention to three variables than to any single election result.
- First, interest rates. If U.S. Treasury yields continue to rise quickly, equity valuations will remain under pressure. If rate volatility eases, discount-rate pressure would also soften, giving risk assets a better valuation backdrop.
- Second, corporate earnings. Any repeat of the historical post-election rally in 2026 would still need support from earnings growth. If earnings expectations continue to move higher, the market will have a better chance of absorbing political and macro volatility. If the earnings cycle weakens, seasonality alone may not be enough to sustain a rally.
- Third, whether policy really changes cash-flow expectations. Election results matter to markets not because of the party label itself, but because they can affect taxes, fiscal spending, trade policy, regulation and debt-ceiling negotiations, which then feed into corporate profits, inflation and interest rates.
The article frames the historical lesson this way: before the election, markets trade uncertainty; after the election, they go back to trading fundamentals. Whether this year repeats the stronger fourth-quarter pattern from past midterm years will not be decided simply by who wins on Nov. 3. It will depend on whether rates, earnings and economic data continue to support current asset prices after the vote.