We’re just weeks away from midterm elections in the United States, and this year, 35 Senate seats are up for election, as are all 435 House seats. Months of stock market ups and downs coupled with rising interest rates and inflation have many Americans feeling fearful as we head into November. However, a quick look at history should do much to calm your nerves.
Over the past 60 years and 15 ensuing midterm elections, the sitting president’s party has lost seats in the House 13 times and in the Senate 9 times—that’s 87 percent and 60 percent of the time, respectively. The stock market reacts to the political uncertainty leading up to an election. In fact, heightened market volatility during election years is the norm—not the exception. However, many people fear that volatility is influenced by which political party is in (or comes into) power, and that’s simply not the case.
Here's what is true about stock market performance surrounding midterm elections:
- Historically, stocks have underperformed during the 12 months leading up to midterm elections. According to Bloomberg, the average annual return for the S&P 500 has been 0.3% during this time rather than the 8.1% historical average.
- Historically, stocks have outperformed during the 12 months after a midterm election. On average, the S&P 500 rallied to 16.3%. Since 1942 there have been ZERO 12-month periods following a mid-term election that weren’t positive.
- The markets do not like uncertainty, so once elections are in the rearview mirror, markets typically rebound accordingly.
- The parties controlling Congress and whether they change after a midterm election historically is not an indicator of market performance.
Case in point, voters had very strong opinions about President Trump and President Obama, but the average annual stock market returns during their administrations were nearly identical at 16.0% and 16.3%, respectively.
Over the long term, markets are driven by fundamentals, not politics. Investors’ long-term success is more closely tied to their comprehensive financial plan and wise decision making than to anything that might happen come November.
Want to know more or dig into all the data? Check out our sources on the links below.
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