- The streak is remarkable. An investor who bought US stocks at the last close before any midterm election in more than 75 years would have made money over the next six or 12 months; the last decline was in 1946, while in other years since 1950 the index fell over those windows roughly a third of the time, according to FT analysis.
- This year’s setup is unusual. In midterm years since 1942, the S&P 500 has fallen an average of 18% from peak to trough within the year, but its deepest fall in 2026 was 9%, just half the midterm average, leaving less pent-up recovery.
- Valuations have never been higher heading into a midterm. The S&P 500’s cyclically adjusted price-to-earnings ratio stands at 40.7, well above the previous midterm high of 33.8 in October 1998 and its average of about 20 since 1942, and just five stocks accounted for more than half of the index’s return in the first nine months of 2026, according to DoubleLine Capital.
- Politics matters for returns. Since 1951 the S&P 500 has returned an average of 13.7% a year under a Republican president and a split Congress, versus just 4.9% when Democrats control both chambers under a Republican president, according to Carson Investment Research.
What Happened?
Analysts say the post-midterm rally is partly a result of pre-election uncertainty that weighs on markets and lifts once the vote has passed. “Markets don’t like uncertainty, and elections breed uncertainty,” wrote JPMorgan’s Jordan Jackson. But with stocks sitting on double-digit gains this year despite October’s tech selloff, some fund managers think the pattern could break. “This year could be different,” said Nuveen’s Laura Cooper. “[Stocks] have already run up quite a bit and the market is facing significant headwinds going into next year.”
Why It Matters?
Oil prices last week rose back to levels not seen since April amid speculation that the US will step up its military campaign against Iran after the vote. Jefferies’ Mohit Kumar sees “a high risk of Trump restarting the bombing campaign after midterms,” pointing to the period before January when “there is no effective Congress,” which drives the firm’s cautious near-term stance. In the eight earlier midterm years when the CAPE was above its average, six-month gains averaged little more than half those in the other 13, and heavy concentration leaves the index exposed if a few big names stumble.
What’s Next?
Prediction and betting markets suggest Democrats are likely to win the House, leaving the Senate as the deciding factor. A Republican Senate would mean a split Congress, historically associated with stronger returns; “fewer big policy swings can mean fewer market disruptions,” Morgan Stanley Wealth Management’s Monica Guerra wrote. A Democratic sweep has a much weaker record. Investors will also watch whether third-quarter earnings ease AI return worries.
Affected Tickers and Coins: SPY, VOO, QQQ, RSP
Source: Financial Times
