Midterm elections rarely generate the excitement of presidential races, but they often attract significant attention from investors looking for clues about future policy and market direction. Voter turnout is lower, the stock market stalls, and investors may feel like they’re in a holding pattern.

So far, however, 2026 is defying those expectations. Generally, the S&P 500 returns less during midterm years than other years—9% on average during midterm years versus an average of about 13% during non-midterm years. That trend tends to be even more pronounced in the first 10 months of the year, with a potential rebound in November when investors have a better sense of where policy might be headed. (More on that later.)

This year, the S&P 500 is up more than 11% for the year ahead of voting. So, what does that tell us about the rest of this year, as well as 2027 and beyond? Let’s dig into it.

Remember: Past performance doesn’t predict future results, but it can provide some insights into what we’ve seen so far and what we may want to consider in the year ahead.

The big picture: Markets and midterms

Midterm years tend to be marked by higher volatility, which could contribute to the lower-than-average historical returns. You may be familiar with the reasoning: Elections create uncertainty for business owners who may be waiting for the votes to be counted to better understand how regulations and public policy could change. Uncertainty, in turn, creates volatility. 

Typically, the stock market begins to rally immediately following elections, when businesses (and their investors) have a better handle on what to expect from a new Congress.

What history tells us

Historical performance gives us insights into market performance as well as investor psychology. Traders and analysts have spent time reviewing these same performance statistics, and therefore, have a set of expectations going into an election cycle. For example:  

• Historically, November has often produced stronger market returns during election years than non-election years, though there is no guarantee this pattern will continue. According to Morningstar data, median and average returns for Novembers during an election-year are significantly higher than during non-election year.

• The president’s party tends to lose seats in the House of Representatives. This is historically true—it’s happened in 20 of the past 23 elections. Polling suggests that trend is likely to continue again in 2026. Some investors may be excited by that prospect. Why?
• There’s a theory that gridlock is good for investors, since political division promotes compromise and prevents any new ‘sweeping’ changes that could impact how a business is run. (This thinking became popular during the Reagan boom years when Democrats controlled Congress.) However, this assertion comes with a big caveat: It’s not factually accurate.

When Morningstar looked at the data, they found that median and average monthly returns over the past 100 years were higher in a unified government (when one party controlled both branches) than a divided government. For instance, the first two years under Barack Obama saw big gains, as have the past two years under President Trump’s second term.

Extenuating circumstances

Some of those historical examples come with a heavy dose of context. For instance, the first two years of President Obama’s first term corresponded with the rebound from the Financial Crisis.

The extenuating circumstances aren’t always as extreme as a recession. The S&P 500 performed poorly during both 2018 and 2022. Both were midterm years, but both years also saw the start of a Federal Reserve rate hike cycle.

This is the essence of the “correlation does not equal causation” caution that many analysts will discuss when talking about market trends.

What is the takeaway for 2026 and beyond?

In general, we discourage clients from making investment decisions based solely on politics. While it may make sense to adjust positions based on potential new legislation or concrete policy initiatives, speculation about who will win the election is just that: speculation.

Plus, historical data can only take us so far. Already, 2026 has defied expectations for a midterm year in terms of S&P 500 performance, despite recent Federal Reserve monetary policy actions. But that may not be the full story. The bond market is showing more skepticism than the stock market, likely tied to this interest rate story. All-in-all, it’s clear markets, investors, analysts, and economists are focused on much more than the election.

As a general matter, maintaining a disciplined, long-term investment approach has historically been more effective than attempting to make portfolio decisions based on political outcomes. We’ll continue to actively monitor news out of Washington, along with our data-drive research partners at Helios. 

Regardless of election outcomes, successful investing is typically built on discipline, patience, and a plan that reflects your personal goals. If you would like to discuss how current events may affect your financial strategy, we’d be happy to help.

This commentary is intended for informational and educational purposes only and should not be construed as investment, tax, or legal advice. Past performance is not indicative of future results, and all investments involve risk, including the possible loss of principal. Historical market data, trends, and observations are provided for context and should not be interpreted as a prediction or guarantee of future market performance. Opinions expressed are subject to change without notice. References to market indexes are for illustrative purposes only, and investors cannot invest directly in an index.