The 2026 midterm election is getting closer. Election Day is November 3.
That means investors will hear more predictions.
What happens if Republicans win?
What happens if Democrats win?
Will the stock market go up?
Will it go down?
Those are fair questions. But I think there is a better one:
Does a midterm election really change what a long-term investor should do?
History gives us some interesting clues. It also gives us a warning about trying to predict too much.
Midterm Years Have Often Been Weaker
Research that looks at S&P 500 returns across the four-year presidential cycle (1950–2023) has shown an interesting average pattern:
- Year 1: 8.3%
- Year 2 (the midterm year): 3.4%
- Year 3 (the year after the midterms): 14.7%
- Year 4 (the presidential election year): 9.1%
Historically, year two has been the weakest and year three has been the strongest.
That does not mean 2026 must follow the same pattern.
History is a guide. It is not a promise.
Why Might Midterm Years Be Different?
One possible reason is uncertainty.
Before an election, investors are trying to understand possible changes in areas like:
- Taxes
- Regulation
- Government spending
- Trade
- Energy policy
- Health care
- Business rules
Before Election Day, there are several possible outcomes.
After Election Day, investors at least know more about who will control Congress—and what the next two years may look like.
Some research suggests the historical pattern has been connected more with changing levels of policy uncertainty than with one political party winning or losing. It also suggests that corporate earnings, business investment, and the economy have historically mattered more to long-term market results than elections themselves.
That distinction matters.
Markets may not always like the answer. But markets generally prefer having fewer unanswered questions.
What Has Happened After Midterm Elections?
This is where the numbers get interesting.
One long-term study found that since 1938, the S&P 500 produced a price gain during the 12 months following a midterm election about 95% of the time. That same body of research showed average returns of roughly 5% during the second year of a presidential term and about 14% during the following 12 months.
Another analysis that looked at midterm elections since 1974 found that:
- From August 1 through Election Day, the S&P 500 averaged about 1.7%.
- During the three months after the election, the average return was about 5.7% (with most periods positive).
- Looking six months beyond the election, the average return was about 12.4% (in that dataset, all periods were positive).
Again, none of this tells us what happens next.
Past elections cannot guarantee the result of the next one.
But the pattern is still worth noting: uncertainty before an election has often looked very different from the market environment after the votes were counted.
Does It Matter Which Party Wins?
Obviously, elections matter.
Congress can affect taxes, spending, regulation, trade, health care, energy policy, and many other parts of the economy.
But investors should be careful about turning political opinions into investment decisions.
Some historical research has found that the midterm pattern has not been tied to one political party consistently winning or losing power.
That is worth thinking about.
You may strongly prefer one political party.
You may believe one set of policies is much better for the country.
You may be completely right about some of those issues.
But that does not automatically tell you what the stock market will do next.
Be Careful About Investing Your Politics
I have seen investors make this mistake.
Their preferred candidate loses. They become worried. They want to sell.
Then another election comes along. The other political party loses. Now a different group of investors becomes worried and wants to sell.
Meanwhile, businesses keep operating.
People keep going to work.
Consumers keep spending.
Companies keep trying to make money.
Technology keeps changing.
Over time, markets keep focusing on things like:
- Corporate earnings
- Interest rates
- Inflation
- Economic growth
- Business investment
- Consumer spending
- Technology
- Global events
Politics matters.
It is simply not the only thing that matters.
What Should an Investor Do Before the Midterms?
I would not begin with:
“Who is going to win?”
I would begin with:
“What are you trying to make possible?”
If you are retired, how much money will you need from your investments over the next several years?
If you are still working, when will you need the money?
Do you have enough cash available so that a market decline would not force you to sell investments at the wrong time?
Has your portfolio taken on more risk than you realize?
Would a 10%, 15%, or 20% market decline cause you to abandon your plan?
Those questions matter whether Republicans or Democrats control Congress.
Volatility Can Tell Us Something Useful
Most investors think volatility is simply bad.
I don’t think it has to be.
Volatility can expose weaknesses in a financial plan.
If a market decline causes you to panic, maybe the problem isn’t just the market.
Maybe you are taking more risk than you thought.
Maybe you don’t have enough cash available.
Maybe your time horizon changed.
Maybe your investments no longer match what the money needs to accomplish.
That is useful information.
The goal should not be to predict every market decline.
The goal should be to have a plan that can live through one.
History Is Not a Trading Rule
This may be the most important point.
The historical midterm pattern is interesting.
Midterm years have tended to be weaker.
The period after the election has often been stronger.
And the year after the midterms has historically been one of the stronger parts of the four-year presidential cycle.
But that does not mean it should be treated as a trading rule—or as a primary prediction tool.
Every market is different.
Interest rates change.
Inflation changes.
Corporate profits change.
Wars happen.
Technology changes.
Consumers change.
The economy changes.
History helps us understand what happened before.
It does not tell us exactly what happens next.
So, Do Midterm Elections Matter?
Yes.
But perhaps not in the way investors sometimes think.
Elections can change policy.
They can create uncertainty.
They can create market volatility.
And once the election is over, some of that uncertainty may disappear.
But I would be very careful about changing a long-term financial plan because of an election prediction.
Instead, ask:
- What am I trying to make possible?
- When will I need this money?
- How much risk can I really handle?
- What happens to my plan if the market falls?
And perhaps most importantly:
Am I changing my investment plan because my life changed—or because the headlines made me uncomfortable?
That question will still matter the morning after Election Day.
And it will matter long after the campaign signs come down.
Sources
- Fidelity Investments: Research on U.S. elections, policy uncertainty, and historical presidential-cycle market patterns (S&P 500).
- Charles Schwab: Historical analysis of S&P 500 performance around midterm elections.
- Federal Election Commission: Federal election schedule information.
Past performance does not guarantee future results. Indexes are unmanaged and cannot be invested in directly. This material is provided for educational purposes and is not intended as individualized investment, tax, or legal advice.