Impact of Midterm Elections on Stock Market Performance

Voters will participate in the 2026 midterm elections on November 3, deciding on all 435 House seats and 35 Senate seats, including two special elections. These results may shift the political landscape and affect the trajectory of various policies during President Donald Trump’s second term. Currently, Republicans maintain narrow majorities in both chambers of Congress, with 218 Republicans and 214 Democrats in the House, along with 53 Republicans and 45 Democrats in the Senate, plus two independents. This control could enable the advancement of the president’s policy agenda, although legislative hurdles, such as the need for 60 votes to end debate in the Senate, remain.

The outcome of the midterms could influence tax, spending, trade, and regulatory proposals, which in turn impact economic growth and corporate earnings. However, the mere control of Congress doesn't solely determine stock performance. Continued Republican dominance might facilitate the president's priorities, while a split government could slow down major legislative changes.

Investors need to analyze specific proposals rather than rely on predictable market outcomes tied to election results. For instance, a tax or spending initiative warrants evaluation based on its implications for economic growth and corporate earnings.

Research from the U.S. Bank Asset Management Group examined Bloomberg market data over 31 midterm elections from 1900 through 2025. It indicated that, in the year preceding midterm elections, U.S. stocks returned an average of 2.9%, which is lower than the average return of 8.9% in non-election years. While uncertainty from campaigns might lead to fluctuations in trading, the findings do not conclude that elections are the cause of reduced returns.

In contrast, the average stock market return in the 12 months following midterm elections has historically been stronger, at 12.4%, with a higher average of 17.5% for elections post-1980. However, past performance does not guarantee future stock market outcomes.

The economy is a critical driver of market returns; shifts in government policies may affect spending and regulation, but factors such as employment, consumer spending, and corporate earnings play more substantial roles in influencing stock market trends.

Data shows that underlying economic conditions often coincided with weak market performance in midterm years. For example, 11 of the last 31 midterm election periods were marked by significant economic challenges like inflation shocks or financial crises, suggesting that these broader issues influence stock outcomes more than the elections themselves.

Ultimately, while midterm elections can shape policy and investor sentiment, economic fundamentals such as consumer spending, inflation benchmarks, and corporate earnings should guide investment strategies. Diversifying investments and aligning portfolios with long-term goals without overreacting to election outcomes is advisable.