The S&P 500 rose after all 11 midterm elections from 1982 through 2022, a track record that gives jittery investors a reason for calm heading into Tuesday's vote.
Across elections from 1980 through 2024, the index gained an average of 13.7% in the year after midterms and 13.8% after presidential contests. Returns were positive 91% of the time.
The early payoff is far smaller. The index climbed an average of 0.2% one day and one week after an election, and 1.1% after a month, while presidential races alone produced slightly negative average returns over the first day and week.
Why divided government helps
Investors have generally fared best when Washington is split, with one party holding the White House and the other controlling at least one chamber of Congress. After 15 such elections, 10 midterms and five presidential, the S&P 500 rose an average of 15% over the next year, with gains in 14 of them.
Single-party control has delivered a more modest average of 11.5%. Ryan Detrick, chief market strategist at Carson Group, said markets grow anxious before elections and feel relief once they pass, but tend to dislike lopsided wins that concentrate spending and power.
If you have a huge red wave or a big blue wave, markets actually kind of don't like that as much because you have too much spending one way and too much power
Ryan Detrick, chief market strategist at Carson Group
One possible result Tuesday, Democrats running Congress under a Republican president, has precedent. After the 1986, 1990 and 2006 midterms produced that lineup, the index slipped 0.5% on the reaction day, then was up 3.4% a month later and 10.9% after a year.
Bigger forces than the ballot
Elections often coincide with events that matter far more. The S&P 500 sank 22.1% in the year after the 2000 elections amid the dotcom bust, its worst post-election showing since 1980, and soared 38.3% after 2020 as markets rebounded from the COVID selloff.
Société Générale has said Federal Reserve policy and the corporate earnings cycle outweigh elections. In 2018, when Democrats took the House, the Fed raised rates four times and the index finished the year down 6.2%, though it stood 11.7% higher a year after the vote.
AI, bonds and Iran
The biggest swing factor now is artificial intelligence and whether the slide in tech stocks continues. Detrick said the bull market is probably intact as long as the AI wave and the economy keep moving, but a Democratic sweep of both chambers could pressure the AI infrastructure buildout.
Seasonality isn't destiny, and worries around Iran, AI and France won't mysteriously vanish
Jim Reid, Deutsche Bank's global head of macro and thematic research
Other risks loom. Bond yields are rising globally, France faces a mini debt crisis, and the war with Iran could intensify after the election if President Trump carries out threatened strikes or Iran escalates.
