Original Title: Midterm Elections and the Markets: What History Says About 2026
Original Author: James Zahansky

Editor's Note: With just over a month to go until the U.S. midterm elections on November 3, political uncertainty has once again become a market variable. All House seats will be up for re-election, and control of the Senate also faces a reshuffle, as markets begin to price in potential changes in fiscal, regulatory, and policy paths that the future congressional structure may bring.

But from a historical data perspective, the midterm elections themselves are not a simple "bearish event." According to J.P. Morgan Asset Management statistics, since 1937, the S&P 500 has risen an average of 9.2% in midterm election years, lower than the 13.3% average in other years, but the average return is still positive. The more obvious characteristic is not a decline, but greater volatility and gains that are more skewed toward the second half.

James Zahansky, chief strategist at WHZ Strategic Wealth Advisors, argued in an article published on September 25 that what truly affects the market in midterm elections is more the uncertainty before the election, rather than the victory of a particular party itself. As the results gradually become clear, the political risk premium may fall, and the market will return to the more core pricing variables of interest rates, corporate earnings, and the economic cycle.

For the current market, this distinction is especially important. In 2026, U.S. stocks are simultaneously facing multiple variables such as interest rate repricing, energy prices, geopolitics, and AI capital expenditure. If the year-end market performance is simply attributed to the midterm elections, it is easy to overestimate the explanatory power of the political event itself.

The following is a translation of the original article:

With just over a month to go until the U.S. midterm elections, the market is entering what is traditionally known as the "political trading" window.

But historical data shows that midterm elections do not naturally correspond to declines in U.S. stocks. According to J.P. Morgan Asset Management statistics, since 1937, the S&P 500 has risen an average of 9.2% in midterm election years, while rising an average of 13.3% in other years. Returns in midterm election years are relatively weaker, but the long-term average is still positive.

The truly more stable characteristic is greater volatility, and market performance being more concentrated in the fourth quarter.

The Typical Path in Midterm Election Years: Weaker in the First Three Quarters, Rebound in the Fourth Quarter

From a quarterly perspective, the seasonality of midterm election years is even more pronounced.

According to J.P. Morgan statistics, historically, the S&P 500 has averaged slightly negative performance in the first three quarters of midterm election years, but has risen by an average of 6.6% in the fourth quarter. Capital Group data shows that since 1950, in the 12 months following the end of midterm elections, the S&P 500 has risen by an average of 15.4%.

These data points can easily be interpreted as "U.S. stocks rise after elections end," but a more accurate understanding is that as elections approach, uncertainty is gradually priced in by the market, and risk premiums may decline accordingly.

Before elections, the market needs to price future congressional control, fiscal policy, and regulatory paths; once these variables gradually become clear, the impact of political uncertainty itself on asset prices often diminishes.

But historical patterns are not trading formulas.

In 2018, the S&P 500 fell 4.4% for the year, and in 2022, total returns fell even more, by 18.1%. These two years were also midterm election years, but the core variables affecting the market included Federal Reserve tightening, inflation, and rapidly rising interest rates. The original text therefore emphasizes that elections and market declines occurring simultaneously does not mean the elections themselves caused the declines.

The market trades policy paths, not party labels

Another focus of the 2026 election is the possibility of a change in congressional control.

At the time this article was published, Republicans controlled both the Senate and the House with a narrow majority, meaning any change in seats could alter the legislative environment for the next two years. If the White House and Congress are controlled by different parties, the most direct impact is usually not the direction of the stock market, but rather increased difficulty in advancing policy.

Major fiscal plans, tax adjustments, and some regulatory agendas may become harder to pass; at the same time, issues such as congressional hearings, budget negotiations, and the debt ceiling may become more important. The original text argues that if a divided government emerges, the policy level is more likely to enter a state of "gridlock."

But this does not mean that political gridlock itself is bullish for the stock market. Capital Group's statistics on long-term historical data show that regardless of unified government, divided Congress, or Congress controlled by the opposition party to the president's party, the S&P 500 has recorded double-digit average returns.

What this data better illustrates is that party control itself can hardly explain long-term U.S. stock market trends on its own.

The same political structure may correspond to completely different inflation, interest rates, corporate earnings, and economic cycles. For the market, what truly matters is not "who controls Congress," but whether the new political structure substantially changes fiscal, regulatory, and growth expectations.

More Important Than Elections: Interest Rates and Earnings

This is also the core market judgment of the original text.

Midterm elections can influence policy expectations, but they rarely determine a complete market cycle on their own.

For stock valuations, the focus ultimately returns to several more direct variables: whether corporate earnings can grow, what level risk-free interest rates are at, whether the economy remains in expansion, and how high a valuation multiple investors are willing to assign.

This is also why the historical patterns of midterm elections need to be used cautiously.

Over the past few decades, the label “midterm election year” has covered completely different economic environments. In 2018, the market faced Federal Reserve rate hikes and tightening financial conditions, while in 2022, it was high inflation and an aggressive tightening cycle. Even if the election timing is exactly the same, the macroeconomic environment in which the market operates can be completely different.

Therefore, if a fourth-quarter rally appears again this year, it cannot simply be attributed to the election. A more reasonable explanation is that reduced election uncertainty may become a marginal positive, but whether the rally can continue still depends on whether fundamentals can cooperate.

Whether the Year-End Rally Can Continue Depends on Three Variables

From now until the end of the year, what is truly worth tracking is not a single election result, but three variables.

The first is interest rates.

If U.S. Treasury yields continue to rise rapidly, stock valuations will still face pressure; if interest rate volatility declines, the pressure from discount rates will ease, and risk assets will gain a better valuation environment.

The second is corporate earnings.

Whether the historical post-election gains can reappear in 2026 ultimately requires support from earnings growth. If earnings expectations continue to be revised upward, the market will find it easier to digest political and macroeconomic volatility; if the earnings cycle weakens, seasonality alone will be difficult to sustain a rally.

The third is whether policy truly changes cash flow expectations.

Election results have market significance not because of party labels themselves, but because they may change taxes, fiscal spending, trade policy, regulation, and debt ceiling negotiations, thereby further affecting corporate profits, inflation, and interest rates.

This is also the framework that historical midterm election data truly provides: before the election, the market trades uncertainty; after the election, the market trades fundamentals again.

Whether this year will replicate the fourth-quarter rallies of the past, the ultimate determining factor is still not who wins on November 3, but whether after the election, interest rates, earnings, and economic data can continue to support current asset prices.

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