Midterm Elections and the Markets: What History Says About 2026

How Midterm Years Usually Trade 

Markets dislike uncertainty about the rules, and a midterm is a referendum on who writes them. The seasonal pattern is remarkably consistent. J.P. Morgan's data shows the S&P 500 slightly negative in each of the first three quarters of a midterm year, then up an average of 6.6% in the fourth. 

Capital Group comes at it from the other end and finds that since 1950, the average one-year return following a midterm election has been 15.4%, close to double the average for other 12-month stretches in that period. 

Individual years vary, and they vary widely. The S&P 500 finished 2018 down 4.4% and 2022 down 18.1% on a total return basis. Neither year had much to do with who won in November. Averages describe a tendency, not a promise, and anyone who tells you otherwise is selling something. 

What is Actually on The Ballot 

Republicans hold the Senate 53 to 47 and the House 219 to 213 with three seats vacant. Democrats need a net gain of three House seats and four Senate seats. That is a thin margin in a year when the sitting president's party has historically given ground, which has been true in nearly every midterm since the Civil War. 

Prediction markets are pricing exactly that. In mid-September, Polymarket traders put Democratic control of the House near 88% and a Democratic Senate close to a coin flip. Those odds move daily. Read them as a temperature, not a forecast. 

The mood behind the numbers is easy to identify. Grocery bills, gas prices, mortgage rates, and the conflict with Iran all show up when people are asked how the economy is treating them, and consumer sentiment has been sliding into the fall. 

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Why Gridlock is The Likeliest Result 

Assume Democrats take one chamber or both. President Trump keeps the veto pen, and he keeps the executive orders, regulatory actions, and emergency declarations that have driven most of the tariff and immigration changes so far. Legislation written by a Democratic House would have a short life. 

What changes is oversight and spending. Expect hearings on artificial intelligence risk, affordability, ICE detentions, the Iran conflict, and Trump family business dealings. Expect the debt ceiling to become a negotiation again before it is reached in 2027, though budget reconciliation still gives the White House a route around a hostile chamber. And expect one file both parties may finally be forced to open together, which is the long-term solvency of Social Security and Medicare. 

For a diversified portfolio, gridlock is a fairly boring outcome, and boring is underrated. Capital Group's work going back to 1933 shows double-digit average S&P 500 returns under unified government, under a split Congress, and under a Congress controlled by the party opposing the president. Three very different arrangements in Washington. Three respectable numbers. 

Four Things to Keep in Mind Between Now And Year End 

1. Pre-election volatility is normal and usually short-lived. Rhetoric peaks in October, and so does the temptation to do something about it. The rally in midterm years has historically arrived in the fourth quarter, often starting about a month before the vote, which means the cost of stepping aside tends to land right when it hurts most. 

2. Your allocation should answer to your plan, not the polls. If the balance of power in Congress would meaningfully change your retirement income strategy, the issue is the strategy. A plan built for a 25 or 30 year horizon should absorb a two-year swing in committee chairmanships without flinching. 

3. Rebalancing is where discipline pays. Strong market performance can shift your investment allocation by increasing equity exposure and overall risk. Rebalancing back to policy is unglamorous work that trims what has run and adds to what has lagged, and it does not require a single opinion about the election. 

4. December 31 does not move. Roth conversion decisions, tax loss harvesting, charitable gifting, required minimum distributions, and business owner planning all run on the calendar year, not the election cycle. Those deadlines are certain, which is more than anyone can say about the Senate map. 

Business owners in particular should get their advisor and CPA in the same conversation this fall. Entity structure, bonus depreciation, and QBI planning move real dollars, and they move them on a schedule set by the tax code rather than by whoever takes the House. 

I have watched markets work through divided government, unified government, impeachments, shutdowns, and a long list of elections that were each described at the time as the most consequential in a generation. The through line has not changed. Stay diversified. Rebalance. Do not try to time it. Keep returning to the long-term plan that got built when nobody was shouting. 

Then vote, turn off the coverage, and let the plan do its job. 

RELATED FAQs 

 Do midterm elections hurt the stock market? 

Not reliably. Since 1937, the S&P 500 has averaged 9.2% in midterm election years versus 13.3% in non-midterm years, according to J.P. Morgan Asset Management. Both averages are positive. Midterm years tend to be more volatile rather than negative. 

What does the stock market typically do after a midterm election? 

It has historically rallied. J.P. Morgan finds the S&P 500 averages a 6.6% gain in the fourth quarter of midterm years after three slightly negative quarters, and Capital Group reports an average 15.4% return in the 12 months following a midterm since 1950. 

Which party is better for the stock market? 

Neither, based on the record. Capital Group data going back to 1933 shows double-digit average S&P 500 returns under unified government, under a split Congress, and under a Congress controlled by the president's opposing party. Market returns have been driven far more by earnings, interest rates, and the business cycle than by party control. 

What happens to markets under divided government or gridlock? 

Divided government has historically been unremarkable for markets. Less legislation passes, which reduces policy uncertainty for businesses, and the S&P 500 has averaged double-digit returns during split-Congress periods since 1933. 

Should I move to cash before the 2026 midterm elections? 

Market timing around elections has a poor record because the historical rebound has often begun roughly a month before election day, meaning investors who step aside frequently miss the recovery. Decisions about your allocation should be tied to your time horizon and goals rather than an election outcome. Discuss any change with your financial advisor first. 

When are the 2026 midterm elections and what is at stake? 

Election day is November 3, 2026. All 435 House seats and 35 Senate seats are on the ballot. Republicans currently hold the Senate 53-47 and the House 219-213 with three vacancies, so Democrats need a net gain of three House seats and four Senate seats to control both chambers. 

How should investors prepare for election-year volatility? 

Focus on what you control: maintain diversification, rebalance back to your target allocation, and complete calendar-year planning items such as Roth conversions, tax loss harvesting, charitable gifting, and required minimum distributions before December 31.