Midterm Elections and the Stock Market: What History Does and Doesn't Tell Investors

A reader in her fifties sent in a question that comes up every two years. She has most of her retirement savings in stock index funds, the midterm elections are on Tuesday, November 3, 2026, and a coworker told her that markets always rally after midterms. Should she add money now, wait until the results are in, or move some of it to cash until things calm down?

That question mixes three separate issues: what past data actually shows, how much weight a handful of past elections can carry, and what any of it means for a long-term portfolio. This article takes them one at a time. It does not predict the election, the market, or which outcome is better, and it is not investment advice.

Where the "midterm rally" idea comes from

Market commentators have long pointed to a pattern sometimes called the presidential cycle, the idea that stock returns tend to be weaker in the months leading up to midterm elections and stronger in the year that follows. Various studies and strategist notes have examined this over many decades, often using different start dates, index versions, and measurement windows.

The appeal of the idea is easy to understand. Before a midterm, uncertainty about who will control Congress, and therefore which policies can pass, gives investors something to worry about. Once results are known, that particular uncertainty fades, whatever the outcome. A story that ties a known calendar event to a plausible mechanism is persuasive.

But persuasive is not the same as reliable. Any pattern drawn from midterms rests on a small number of observations, because there is only one midterm every four years. Even a century of data provides only about 25 of them, and markets during those years were shaped by wars, recessions, inflation spells, interest rate cycles, and many events unrelated to elections.

Two recent cycles, by the numbers

To keep this concrete and verifiable, here is what the S&P 500 index did around the two most recent midterms, using daily closing values published by the Federal Reserve Bank of St. Louis in its FRED database. These are price levels only and exclude dividends, so they understate total returns.

In 2018, the index closed at 2,930.75 on September 20, then fell to 2,641.25 by October 29, a drop of about 9.9% in roughly five weeks before the vote. On election day, November 6, 2018, it closed at 2,755.45. The slide was not over: by December 24, 2018, the index had fallen to 2,351.10, about 14.7% below its election day close. One year after the election, on November 6, 2019, it stood at 3,076.78, about 11.7% above the election day level.

In 2022, the backdrop was very different. The index closed at 4,796.56 on January 3, 2022, then fell to 3,577.03 by October 12, about 25.4% lower, during a year of rising interest rates and high inflation. On election day, November 8, 2022, it closed at 3,828.11. One year later, on November 8, 2023, it closed at 4,382.78, roughly 14.5% above the election day level.

What those two cycles do and don't show

Both of these cycles fit the popular story on the surface: weakness before the vote and gains in the year after it. It is tempting to stop there. Several cautions apply.

First, two examples are not a pattern. They are consistent with the idea, but they cannot confirm it. Flipping a coin twice and getting heads both times does not say much about the coin.

Second, the path between the election and the one-year mark was not smooth. In 2018, someone who bought on election day watched their investment fall nearly 15% within seven weeks before it recovered. A strategy based on a one-year window can feel very different when you are living through the middle of it.

Third, the causes are hard to separate. In 2022, the market's decline was widely tied to inflation and rapid interest rate increases, and the later recovery coincided with changing expectations about those same forces. Whether the election itself contributed meaningfully is difficult to measure when much larger economic forces were moving at the same time.

Fourth, the endpoints matter. Change the start or end date by a few weeks, and the percentages shift. Any statistic about election periods is partly a product of where the measuring window begins and ends.

Why small samples deserve extra caution

When a pattern has been noticed and widely discussed, there is another problem. If enough investors believe stocks will rise after a midterm, they may buy earlier, which pulls gains forward and weakens the pattern. Markets tend to price in widely known expectations, which is one reason simple calendar strategies can stop working once they become popular.

There is also the issue of searching through data. With many possible ways to slice history, some will produce striking results by chance. A pattern that looks strong in one window can disappear in another. That does not make the historical observations wrong, but it does mean they should be treated as context rather than a forecast.

Party control and the market

Another common question is whether markets do better under one party, or under divided government, which midterms often produce. This is where discussions frequently become partisan, and where the data is weakest.

The number of distinct combinations of White House and congressional control in modern history is small, and each period comes with its own economic conditions. Comparing average returns across those combinations means comparing a few long stretches that differ in countless ways besides politics. Reasonable analysts reach different conclusions depending on the period studied, and no combination guarantees a particular result.

For an individual investor, the practical takeaway is that election outcomes are one input among many, and usually not the largest one. Earnings, interest rates, inflation, and global events tend to have a more direct effect on prices.

Volatility around election day

What does seem reasonable to expect is some short-term noise. Election nights can bring sharp moves in futures markets as results come in, and particular sectors may react to perceived policy changes, such as health care, energy, defense, or financial companies. Those moves can reverse quickly as markets digest the details.

This is one reason many professionals caution against making large portfolio changes based on election night headlines. A decision made at 11 p.m. on election night, based on partial returns, can look very different a week later when the full results and their implications are clearer.

Policy versus politics

It also helps to separate elections from policy. Legislation takes time to pass, if it passes at all, and even then its effects on companies and the economy usually unfold over years. A change in congressional control can alter the odds of certain policies, but it rarely changes corporate earnings overnight.

Investors focused on specific sectors may follow policy debates more closely. For a broadly diversified portfolio, though, the mix of winners and losers from any policy shift tends to offset to some degree.

Questions to ask yourself before acting

Rather than asking what the market will do after November 3, it may be more useful to ask questions about your own situation.

When will you need this money? Funds needed within a few years are generally better suited to lower-risk holdings regardless of the political calendar. Money meant for retirement decades away has much longer to recover from any short-term drop.

Does your current allocation still match your risk tolerance? If an election makes you anxious about your stock exposure, that anxiety may be a sign your allocation is more aggressive than you are comfortable with, which is worth addressing on its own merits.

Do you have a plan for adding new money? Many investors contribute on a regular schedule through a workplace plan, a process sometimes called dollar-cost averaging. Sticking to that schedule removes the need to decide whether any particular week is a good time to buy.

Would you be making this change if there were no election? If the answer is no, it may be worth pausing before acting.

The cost of getting the timing wrong

Moving to cash ahead of an event has two parts that both need to go right: getting out and getting back in. The 2018 example shows how hard that is. An investor who sold in late September 2018 to avoid election uncertainty would have avoided the October drop, but then faced a decision about when to return. Buying back on election day would have meant sitting through a further decline into late December. Waiting for things to feel calm might have meant missing much of the recovery in 2019.

The 2022 example cuts the other way. Someone who waited until after the election to invest would have missed the rebound from the October low, which had already lifted the index about 7% by election day.

In both cases, the outcome depended on dates that were impossible to know in advance. That is the practical problem with timing strategies built around political events.

Rebalancing as a neutral alternative

For investors who feel they must do something, rebalancing offers a step that does not depend on guessing the outcome. Rebalancing means returning a portfolio to its target mix, for example 60% stocks and 40% bonds, after market moves have pushed it away from that mix.

If stocks have risen strongly, rebalancing trims them back toward target. If they have fallen, it adds to them. The decision is driven by your own allocation rules rather than by a forecast about the election. Some investors rebalance on a set schedule, such as once a year, while others act when an asset class drifts beyond a set band.

Rebalancing in a taxable account can create capital gains, so many people do it inside retirement accounts or by directing new contributions toward the underweight asset. A tax professional can help weigh those trade-offs.

A note on the figures above: price-only index levels leave out dividends, which have historically made up a meaningful share of stock returns. Total-return figures for the same periods would be somewhat higher than the price changes shown.

What history can reasonably offer

Historical election data is not useless. In the two recent cycles reviewed here, it shows sharp declines before the vote and an index that was higher one year after election day than on election day itself. It also shows that the path can be rough, and that the size and timing of moves vary widely from one cycle to the next.

For investors, the most reliable lesson may be humility about prediction. A well-diversified portfolio built around your timeline and risk tolerance is designed to hold up across many political outcomes, not to bet on one.

The midterms will produce headlines, and possibly some volatile days. Your plan does not need to change because the calendar does, though an election can be a useful prompt to confirm the plan still fits your life.