With just over a month to go before the US midterm elections, the market is entering a traditionally “political deal” window.
Original title: Midterm Elections and the Markets: What History Says About 2026
Original author: James Zahansky
Compiled by: BlockBeats
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 the market begins 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 any particular party itself. As the results gradually become clear, the political risk premium may fall, and the market may 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. equities are simultaneously facing multiple variables including interest rate repricing, energy prices, geopolitics, and AI capital expenditure. If the year-end market action is simply attributed to the midterm elections, it is easy to overestimate the explanatory power of the political event itself.
The following is the compiled original text:
With just over a month to go until the U.S. midterm elections, the market is entering what is traditionally a "political trading" window.
But historical data shows that midterm elections do not inherently correspond to declines in U.S. equities. 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 averaging a 13.3% gain 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 action that is 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 performance perspective, seasonality in midterm election years is even more pronounced.
J.P. Morgan statistics show that historically, the S&P 500's average performance in the first three quarters of midterm election years was slightly negative, but it rose an average of 6.6% in the fourth quarter. Data from Capital Group shows that since 1950, in the 12 months after the midterm elections end, the S&P 500 has risen an average of 15.4%.
This set of data is easily interpreted as "U.S. equities rise after the election ends," but a more accurate understanding is: as the election approaches, uncertainty is gradually digested by the market, and the risk premium may decline accordingly.
Before the election, the market needs to price in future congressional control, fiscal policy, and regulatory paths; once these variables gradually become clear, the impact of political uncertainty itself on asset prices often weakens.
But historical patterns are not the same as a trading formula.
In 2018, the S&P 500 fell 4.4% for the full 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 Fed tightening, inflation, and rapidly rising interest rates, respectively. The original text therefore emphasizes that the election and the market decline occurring at the same time does not mean that the election itself caused the decline.
What the market trades is the policy path, not party labels
Another focus of the 2026 election is that control of Congress may change.
At the time this article was published, Republicans controlled both the Senate and the House by a narrow margin, 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 the increased difficulty of advancing policy.
Major fiscal plans, tax adjustments, and some regulatory agendas may become harder to pass; at the same time, the importance of issues such as congressional hearings, budget negotiations, and the debt ceiling may rise. 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 whether under unified government, a divided Congress, or a Congress controlled by the opposition party to the president's party, the S&P 500 has recorded double-digit average returns.
What this set of data better illustrates is: party control itself can hardly explain long-term U.S. equity 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.
What matters more than the election is still interest rates and earnings
This is also the core market judgment of the original text.
Midterm elections can affect policy expectations, but they rarely determine a complete market cycle on their own.
For equity valuations, the final answer still comes back to several more direct variables: whether corporate earnings can grow, what level the risk-free rate is 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 simultaneously covered completely different economic environments. In 2018, the market faced Fed rate hikes and tightening financial conditions, while in 2022, it faced high inflation and an aggressive tightening cycle. Even if the election timing is exactly the same, the macroeconomic environment in which the market finds itself can be completely different.
Therefore, if a fourth-quarter rally occurs again this year, it cannot simply be attributed to the election. A more reasonable explanation is: reduced election uncertainty may become a marginal positive, but whether the rally can be sustained still depends on whether fundamentals can cooperate.
Whether the year-end rally can continue: focus 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, equity valuations will still face pressure; if interest rate volatility declines, pressure on the discount rate eases, and risk assets will gain a better valuation environment.
The second is corporate earnings.
Whether the historical post-election rally can repeat in 2026 ultimately requires earnings growth to support it. 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 hard-pressed to sustain the rally.
The third is whether policy truly changes cash flow expectations.
The election result has market significance not because of party labels themselves, but because it 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 midterm election historical 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 rally 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.