Since the first post‑Civil War midterm in 1874, the S&P 500 has risen in the year following 32 of the 38 elections, delivering an average total return of 14% in the 12 months after Election Day, according to a Motley Fool analysis of Robert Shiller’s historic market data.
What the numbers reveal
The study shows that the market’s performance after a midterm is only loosely tied to which party holds the White House or how many seats the president’s party loses in Congress. Divided government – where either the House, the Senate, or both are controlled by a party other than the president’s – has actually produced stronger returns than unified government.
When a Democratic president faced a divided Congress, the market posted positive returns in eight of nine midterms. Under Republican presidents, a divided Congress followed 14 midterms, and the market was positive 93% of the time. By contrast, a unified Republican government is the only arrangement that has averaged a negative return, though the sample is small and includes years that preceded major financial panics.
Timing matters
Historically, the S&P 500 drifts modestly higher in the months leading up to a midterm. The index has averaged a 4% gain in the six months before the election and a 1.5% gain in the month directly before Election Day, with positive returns 63% and 76% of the time, respectively.
After the votes are counted, the market’s momentum eases. The month following a midterm sees an average gain of just 0.5%, positive only 55% of the time. Larger gains tend to appear later: a 6% average increase three months after the election and a 10% average rise six months after, with positive outcomes in 76% and 87% of those windows.
What this means for investors
The data suggest that trying to time the market around election results is a gamble. Long‑term investing based on company fundamentals remains the soundest strategy, as the market’s overall trajectory is not dictated by short‑term political headlines.
While midterm elections dominate the news cycle and can cause short‑term anxiety for investors, the historical record shows they rarely trigger wild swings once the dust settles. The average 14% gain in the year after a midterm outpaces the market’s long‑run 11% annual average, offering reassurance to those who stay the course.
Key takeaways
- 32 of 38 midterms since 1874 have been followed by a rising S&P 500.
- The average 12‑month post‑midterm return is 14%, higher than the market’s long‑run average.
- Divided government tends to produce stronger returns than unified control.
- Short‑term market moves before and immediately after elections are modest; larger gains usually materialize later in the year.
Investors who focus on solid fundamentals and ignore the short‑term political noise are likely to benefit from the long‑term upward trend demonstrated by more than a century of data.
Original reporting: KRDO (Colorado Springs metro) — read the source article.
