Midterms Are Over. Here's What History Says the S&P 500 Does Next.

The 2026 midterm elections have concluded, marking the beginning of the 120th Congress on January 3, 2027. New representatives and senators will join the legislature, which could potentially influence the stock market through legislation affecting consumers, businesses, and investors. However, the impact of a new Congress, particularly in a divided government, remains uncertain.

Investors often experience unease during election periods, as the value of stocks depends on future earnings expectations. Uncertainty leads to a wider range of possible outcomes, prompting investors to demand a larger safety margin for stocks. Historically, stock market returns have been weaker during midterm election years, averaging 2.8% since 1990.

The upcoming 2026 election year has thus far exceeded this average, with the S&P 500 up more than 10% before the vote. Nevertheless, this performance is not exceptional, as the average is influenced by poor market results in 2002 and 2022. Post-midterm election periods have consistently yielded positive returns for the S&P 500, with an average of 15.1% from 1950 to the present.

Factors such as GDP growth, unemployment, prices, interest rates, and consumer spending have a more significant impact on corporate profits and stock prices than political actions. Analysts at U.S. Bank excluded outlier years impacted by major economic shocks since 1900, finding that returns in midterm election years are comparable before and after the election.

Investors should focus on the underlying fundamentals of companies, sectors, and the economy rather than political developments. A consistent, passive investment strategy and regular contributions are likely to yield favorable results, regardless of the election cycle. Individual investors can still find opportunities in any market, regardless of the legislative landscape.