Divided We Rise?

October 19, 2026 | Fred Huang, Research Analyst

Since 1980, the S&P 500 Index has generally performed well in the weeks surrounding U.S. midterm elections. Specifically, the index has notched an average return of approximately 6.5% in the fourth quarter of midterm election years, compared with roughly 3.0% in the fourth quarter of all other years.

Why do stocks tend to perform well following midterm elections?

• Markets often experience uncertainty ahead of elections, with a recovery sometimes beginning in the days leading up to Election Day. Once the outcome of the election becomes clearer, the range of potential policy outcomes narrows, reducing uncertainty and potentially supporting equity valuations. Historically, this pattern has occurred regardless of which party gains or loses control of Congress.
• The incumbent president’s party has lost seats in 36 of the last 39 midterm elections. A divided government can limit the likelihood of sweeping policy changes, providing investors with greater visibility into the regulatory and fiscal environment. Major changes to corporate taxes, capital gains treatment, healthcare, financial regulation, and energy policy often require congressional support. Although a divided government can constrain both pro-growth measures and policies that may weigh on corporate profitability, markets may benefit from greater predictability and a narrower range of potential outcomes.
• Administrations may pursue more difficult or politically contentious measures earlier in a presidential term, while placing greater emphasis on pro-growth policies and economic stimulus as the next presidential election approaches. This dynamic can contribute to a more supportive policy environment for equities later in the presidential cycle.

Does this suggest stocks will rally following next month’s midterm elections?
Historical evidence points to a favorable seasonal tendency for U.S. equities following midterm elections, particularly over the subsequent two to three months. However, this pattern should be viewed as a supportive factor rather than a standalone investment signal. A more compelling outlook would combine favorable election-related seasonality with improving earnings expectations, reasonable valuations, and supportive monetary policy. Of these four factors, at least two currently appear to be in place, providing a potentially constructive backdrop for U.S. equities, although historical patterns do not guarantee positive returns.

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