Skip to Content

How do markets typically perform following midterm elections?

While equities often struggle leading up to midterm elections, the following calendar year has been on average a strong period for equity markets.

S&P 500 returns over the election cycle chartMidterm elections are fast-approaching, and although the Republicans appear poised to assume a majority in the House of Representatives, the race for the Senate looks like it may come down to the wire. A lot can still happen before election day on November 8, but history suggests that just getting past the election could be a positive catalyst for the equity market.

First is the simple fact that one meaningful source of uncertainty will be behind us. Markets tend to dislike policy uncertainty, as evidenced by Year 2 (midterms) and Year 4 (presidential election) of the U.S. election cycle. In those years, average returns have been lower and the range of outcomes wider, suggestive of greater volatility. Once election uncertainty clears, markets have typically responded positively, particularly following midterms. Since 1949, Year 3 of the election cycle has not only posted the highest average return but has also never experienced a significant down year for stocks.

Secondly, a split Congress has typically corresponded to stronger average returns for equities — most likely due to the natural checks and balances that limits sweeping policy changes. If recent polls hold, the probability of split control of Congress over the next two years appears high.

Finally, there’s the simple acknowledgment that investing in stocks over the long term has paid off. The average return for stocks has been positive in each year of the four-year election cycle. As we discuss in our accompanying piece, equity markets tend to rise over time, regardless of the political climate or party control.

Moving past the election won’t resolve all the sources of uncertainty facing the markets, but it will eliminate one. History suggests that should be good news for investors.

Past performance does not guarantee future results. All investments include risk and have the potential for loss as well as gain.

Data sources for peer group comparisons, returns, and standard statistical data are provided by the sources referenced and are based on data obtained from recognized statistical services or other sources believed to be reliable. However, some or all of the information has not been verified prior to the analysis, and we do not make any representations as to its accuracy or completeness. Any analysis nonfactual in nature constitutes only current opinions, which are subject to change. Benchmarks or indices are included for information purposes only to reflect the current market environment; no index is a directly tradable investment. There may be instances when consultant opinions regarding any fundamental or quantitative analysis may not agree.

Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation.

Related Thinking

Building with american flags
October 20, 2022

How do changes in political power impact long-term investment returns?

Blog 1 min read
People standing looking at chart on board
October 6, 2022

Has the stock market historically outperformed following equity bear markets?

Blog 1 min read
Woman sitting looking at data on computer
October 6, 2022

What does history tell us about the probability of positive stock market returns following bear markets?

Blog 1 min read