AEWM Wealth Report: Midterms and Markets
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Elections tend to create a lot of questions and uncertainty. The uncertainty can wreak havoc on markets amid concerns about potential changes or stalls in fiscal, tax, estate, international and environmental policies.
Key Takeaways:
- This year’s midterm voter turnout could be higher due to issues such as affordability, economic and international policy concerns.
- Midterm years have historically been weaker for stocks (although that pattern hasn’t held for 2026 so far), and then rebounded strongly in the 12 months following past midterms.
- Divided government has historically outperformed one-party control for stocks, but investors should focus on long-term goals rather than reacting to short-term political headlines.
Overview
Americans are headed back to the polls once again. Midterm elections, scheduled for Tuesday, Nov. 3, will determine not only who has control of both the U.S. House and Senate but also who is governor in 36 states and three U.S. territories.1
While midterm elections don’t generally see the same turnout as presidential elections, some analysts are expecting a higher number of Americans to cast their vote this year. They’re being spurred to the polls by issues like affordability, the economy, international policies and redistricting.2
A shift in power could mean either gridlock in Congress or advancement of political agendas. But no matter who is elected, one thing is certain: Until the election is completed and uncertainty fades, markets will likely stay volatile.
Who is up for election in 2026?
- All 435 House seats
- 35 of the 100 Senate seats
- 39 out of 53 state and territory governors
Market Volatility and Midterm Elections
We don’t need to look far to find examples of midterms causing trouble for markets. Since 1945, the S&P 500 has gained an average of 3.8% during election years, compared to an average gain of 10.9% during the other three years of a presidency.3 Markets have not followed that trend so far in 2026; as of Sept. 2, the S&P 500 was up 11.48% despite battling headwinds such as the war in Iran, the price of oil and a sputtering economy.4
Why can midterms create turmoil for markets? Uncertainty, mostly. If the presidential party has control of the Senate and House, it could result in the passage of a host of new policies. But if the non-presidential party holds the majority in either chamber, then it could halt the adoption of new legislation until the next election cycle.
The thought of shifting legislative priorities tends to make markets squeamish, particularly when they concern changing fiscal, environmental, tax and international policies. These policies directly impact businesses and consumers, the driving forces of the U.S. economy. That can be a nerve-wracking thought for investors, particularly in years when high inflation, potentially rising interest rates and a sluggish economy have everyone on high alert for a potential recession.
Still, there is good news. In the past 80 years, markets have returned 16.3% in the 12 months after midterms on average.3 Whether this midterm election will continue or break the cycle remains to be seen, especially as the headwinds that have caused challenges for markets this year continue going into 2027.
Final Thoughts
What should investors hope for as we head into midterms? Politics aside, stocks have historically performed best under divided control. Between 1951 and 2023, the S&P 500 returned 8% annually when one party was in control, compared to 9.9% when different parties controlled the presidency and at least one chamber of Congress.5
No matter which political party is in charge, it’s important for investors to remember that short-term events should not serve as a distraction from long-term goals. Stay focused on the bigger picture and rely on your financial advisor to help you navigate new legislation and regulations as they come.
Sources:
1 Ballotpedia. “Gubernatorial elections, 2026.” https://ballotpedia.org/Gubernatorial_elections,_2026. Accessed Sept. 2, 2026.
2 Tracy Grant. Britannica. Sept. 2, 2026. “2026 U.S. midterm elections.” https://www.britannica.com/event/2026-US-midterm-elections. Accessed Sept. 2, 2026.
3 Sergei Klebnikov. J.P. Morgan. Aug. 12, 2026. “How does the stock market perform during midterm election years? A guide for investors.” https://www.chase.com/personal/investments/learning-and-insights/article/how-does-the-stock-market-perform-during-midterm-election-years. Accessed Sept. 2, 2026.
4 Morningstar. “S&P 500 PR.” https://www.morningstar.com/indexes/spi/spx/quote. Accessed Sept. 2, 2026.
5 Ryan Ermey. CNBC. Nov. 7, 2024. “What a Republican sweep in Congress could mean for the stock market—in one chart.” https://www.cnbc.com/2024/11/07/chart-divided-us-government-historically-better-for-stocks.html. Accessed Sept. 2, 2026.
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