Investors often wonder whether the outcome of a midterm election will swing the stock market. A comprehensive review by The Motley Fool, using Robert Shiller’s historic market data, shows that the market has generally risen in the year following a midterm election.
Historical performance since 1874
Out of the last 38 midterm elections, the S&P 500 posted a positive total return in the 12 months after the vote in 32 cases – an 84% success rate. The average gain over those 12‑month periods was 14%, compared with an 11% return for any typical 12‑month span in market history.
Pre‑election trends
In the six months leading up to a midterm, the index typically drifts upward, averaging a 4% gain. The month immediately before Election Day adds another modest 1.5% rise, with positive returns recorded 63% of the time in the six‑month window and 76% of the time in the final month.
Post‑election behavior
After the votes are counted, the market’s momentum eases. The month following a midterm sees an average gain of just 0.5%, positive in 55% of the cases. Larger gains tend to materialize later: a 6% average increase three months after the election and a 10% rise six months after, with positive outcomes 76% and 87% of the time respectively.
Impact of party control
The party that controls the White House and Congress after a midterm does affect returns, but not in a simple way. Divided government – where either the House, the Senate, or both are controlled by a party different from the president’s – has historically produced stronger returns than unified government.
When a Democratic president faced a divided Congress, the market was positive in eight of nine elections. Under a Republican president, a divided Congress followed 14 midterms, and the market posted positive returns 93% of the time. By contrast, a unified Republican government after a midterm has been the only scenario that averaged a negative 12‑month return, though the sample is small and includes years that preceded major financial panics.
Seat losses and market moves
How many seats the president’s party loses in the House or Senate shows little correlation with market performance. Even landslide losses (40 or more House seats) have produced returns comparable to elections with modest seat changes.
What this means for investors
The record suggests that long‑term, fundamentals‑based investing remains the sound strategy. Trying to time the market based on election odds or short‑term political headlines is akin to gambling on prediction markets and is unlikely to yield consistent gains.
While midterm elections generate headlines and can cause short‑term volatility, the broader data indicate that the market’s direction is driven more by economic fundamentals than by the partisan outcome of a single election cycle.
Key takeaways
- The S&P 500 has risen in the year after 84% of midterm elections since 1874.
- Average 12‑month post‑midterm return: 14%.
- Divided government tends to produce stronger returns than unified control.
- Seat losses do not meaningfully affect market performance.
- Long‑term investing based on company fundamentals remains the prudent approach.
Original reporting: KTVZ (Central Oregon) — read the source article.
