S&P 500 History Shows Strong Gains Often Follow Midterm Elections Despite Market Anxieties

Stock markets face nervous trading ahead of midterm elections, but historical data shows the event usually leads to strong gains for stocks regardless of the political outcome. A CNBC analysis of S&P 500 returns from 1980 through 2024 reveals the index rose an average of 0.2 percent after one day and one week, and 1.1 percent after one month across both presidential and midterm elections. A year later, the index gained an average of 13.7 percent after midterms, with positive returns in 91 percent of cases, and rose after all 11 midterms from 1982 through 2022.

Market Preferences

Short-term returns remain less reliable, especially after presidential contests. Ryan Detrick, a CNBC contributor and chief market strategist at Carson Group, notes that anxiety before elections gives way to relief once voting concludes, helping markets perform well. The market typically prefers a divided government where one party holds the White House and the other controls at least one house of Congress. Across 10 midterm and five presidential elections with no single party in charge, the S&P 500 rose an average of 15 percent after one year, with positive returns in 14 out of 15 cases. Single-party control produced a lower average one-year gain of 11.5 percent.

Other Economic Factors

Elections often coincide with broader economic forces that matter more for market performance. The S&P 500 plunged 22.1 percent in the year after the 2000 elections due to the dotcom bust, while the best post-election year was a 38.3 percent gain following the 2020 elections during the COVID-19 recovery. Société Générale points out that Federal Reserve policy and corporate earnings ultimately matter more than elections. During the 2018 midterms, when Democrats won control of the House during President Donald Trump's first term, stocks declined as the Fed raised interest rates four times, though the index still gained 11.7 percent a year after the election. Current swing factors include artificial intelligence trends, rising global bond yields, a mini debt crisis in France, and geopolitical tensions involving Iran. Jim Reid, Deutsche Bank's global head of macro and thematic research, notes that seasonality is not destiny and worries about Iran, AI, and France will persist.

Context

Midterm elections happen halfway through a president's four-year term and often serve as a referendum on the current administration's policies. Financial markets frequently experience short-term uncertainty during political transitions before returning their focus to fundamental economic indicators like interest rates and corporate earnings.