How midterm elections affect the stock market

Midterm elections can change control of Congress and determine which policy proposals advance, change or stall. On November 3, 2026, voters will choose representatives for all 435 House seats and senators for 35 seats, including two special elections. The results could reshape the balance of power during the final two years of President Donald Trump’s second term.

Republicans hold narrow majorities in both chambers. As of September 28, the House included 218 Republicans, 214 Democrats, one independent and two vacancies, while the Senate included 53 Republicans, 45 Democrats and two independents who caucus with Democrats. Republican control of the White House and Congress could help advance the president’s agenda, although the Senate generally needs 60 votes to end debate on legislation and each chamber needs a two-thirds vote to override a presidential veto.

How the 2026 midterm elections could affect policy

The 2026 results could change the prospects for tax, spending, trade and regulatory proposals. Those policies can affect economic growth and corporate earnings, although congressional control alone does not determine how stocks will perform. Continued Republican control could give the president more room to pursue legislative priorities, while divided government could require negotiation or limit major changes.

Investors should evaluate proposals as they develop rather than assign a predictable market result to any election outcome. A tax or spending measure, for example, calls for analysis of its potential effects on growth, costs and earnings, not just the party advancing it. The election will determine which proposals have a path through Congress, but it cannot tell investors how stocks will perform.

To examine that separate question, U.S. Bank Asset Management Group Research reviewed Bloomberg market data covering 31 midterm elections from 1900 through 2025. The research compared U.S. stock returns before and after elections while accounting for economic, business and geopolitical developments that also influence markets. Its findings help distinguish a historical average from an election-driven forecast.

Stock market performance before midterm elections

During the 12 months before midterm elections, U.S. stocks produced an average return of 2.9%, compared with 8.9% across all years in the research. The stock series uses the Dow Jones Industrial Average through 1928 and the S&P 500 thereafter. Campaign uncertainty and shifting policy expectations may contribute to uneven trading, but the difference in averages does not prove that elections caused weaker returns.

Investors should not treat the pre-election pattern as a signal to enter or exit the market. Stock prices often adjust to expected policy changes before voters cast ballots, and those expectations can shift throughout a campaign. Economic growth, inflation, interest rates and corporate earnings can exert a larger and more lasting influence on returns.

Stock market performance after midterm elections

Stock market performance after midterm elections has historically been stronger. U.S. stocks returned an average of 12.4% during the following 12 months, and the average for elections since 1980 reached 17.5%. Clearer election results may help investors refocus on growth, interest rates and corporate earnings, which continue to shape the market after the votes are counted.

Stocks did not rise after every midterm, and the historical averages do not guarantee gains after the 2026 election. The results also do not support the same portfolio decision for every investor. A strategy grounded in long-term goals and risk tolerance offers a sounder basis for decisions than election headlines alone.

Why the economy drives stock market returns more than elections

Economic and geopolitical events help explain many of the weakest results around midterm elections. Eleven of the 31 election periods coincided with inflation shocks, rising interest rates, the Great Depression, war, financial stress or deteriorating business conditions. These forces affected business activity and corporate profits, complicating any claim that the elections themselves drove returns.

The economy remains the primary engine of market returns. Elections can influence government spending and regulation, but employment, consumer spending, inflation, interest rates and corporate earnings affect companies’ sales, costs and access to financing. Investors can follow those measures to assess whether the environment supports or restrains stock prices.

Statistical testing did not find differences large or consistent enough to establish a dependable midterm-election effect. A t-test compares groups of results to assess whether an observed difference likely reflects a recurring pattern rather than chance; this test did not establish that midterms consistently changed returns. ¹ The sample includes only 31 elections, and outcomes ranging from losses greater than 30% to gains near 50% further limit conclusions based on averages alone.

Historical midterm election returns need economic context

The historical record becomes more useful when investors examine the conditions surrounding each election. The Great Depression shaped 1930; inflation and rising rates weighed on 1966, 1970 and 2022; and weak growth combined with high inflation in 1974. The collapse of the technology-stock bubble shaped 2002, illustrating why an election date alone cannot explain a market decline.

Exhibit 2: When the economy, not the election, moved markets

Eleven midterm years with weak stock returns, grouped by the non-election catalyst that drove them. Returns cover U.S. large-cap stocks in the 12 months leading up to each election. 

Growth and inflation trends provide another way to assess the market backdrop. Average three-month S&P 500 returns differed when growth or inflation rose or fell, and each comparison below met the research’s threshold for statistical significance. These figures describe returns observed during economic conditions, not returns caused by a midterm election.

Investors should also distinguish a recurring historical pattern from a dependable forecast. Each election occurs amid a different mix of growth, inflation, interest rates and stock prices, which limits direct comparisons. Economic conditions offer context for assessing returns alongside the election rather than using the election alone to predict them.

Does political control predict stock market returns?

U.S. Bank Asset Management Group Research also compared average three-month S&P 500 returns across periods with different combinations of White House and congressional control, beginning in January 1948. The comparison covers each full period of political control, not just the months around midterm elections. Average returns were 2.42% under one-party control and 2.17% under mixed control, but neither overall difference was statistically significant.

Returns for individual political configurations varied, and some differed significantly from the average across all periods. Those differences do not establish that a particular election outcome caused the returns or will produce the same result in 2026. Investors can use the comparison as historical context while evaluating the growth, inflation and earnings outlook behind any change in policy.

Keep investment decisions focused on market fundamentals

Midterm elections can affect policy and investor expectations, but the economy and company results provide a broader basis for assessing stocks. Employment and household spending help indicate demand, while inflation and interest rates influence costs and financing; corporate earnings show how companies navigate those conditions. Investors can prepare for political uncertainty by diversifying, matching portfolio risk to their time horizon and avoiding large shifts driven solely by election headlines.

The election may change the direction of specific policies, but history does not support rebuilding an investment strategy around which party controls Congress. A wealth management professional can help you assess how policy and market developments relate to your goals. Stay informed with the latest market news impacting investors.

This information represents the opinion of Wealth Management of U.S. Bank and U.S. Bancorp Investments. The views are subject to change at any time based on market or other conditions and are current as of the date indicated on the materials. This is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific advice or to be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their unique situation. The factual information provided has been obtained from sources believed to be reliable but is not guaranteed as to accuracy or completeness. Any organizations mentioned in this commentary are not affiliated or associated with U.S. Bank or U.S. Bancorp Investments in any way.