Democrats Sweep Congress: What History Says Comes Next for Stocks

The 2026 midterm elections saw the Democrats secure a majority in both the Senate and House of Representatives, along with significant governorships in Texas and Pennsylvania. Historically, after such midterm elections, stocks perform impressively. Since 1938, the S&P 500 has gained an average of 14.5% in the 12 months following midterm elections.

The period leading up to presidential elections, from November to November, has seen an average gain of 9.1%. The fourth quarter and the first and second quarters of the following year have also been strong, with the S&P 500 gaining 80% of the time, averaging 4.2% and 6.6% respectively. These patterns suggest robust potential returns for the market ahead.

Despite a notable sell-off following the election, historical data shows that large single-day declines are often followed by strong returns the next year. In fact, the S&P 500 generated positive returns 90% of the time and over 20% 80% of the time after such declines. However, stocks tend to underperform when there is a Republican president and a fully controlled Democratic Congress, with an average annual return of just 4.9% since 1951.

Conversely, a split Congress tends to favor the market, with the S&P 500 generating a 17% yearly return with a Democrat president and a split Congress and a 13.7% return with a Republican president and a split Congress. The tech sector, especially AI-related stocks, is expected to outperform, given the current AI build-out. Despite the rhetoric around AI data center build-out, these companies are well-positioned to continue leading the market.

Dollar-cost averaging into top index ETFs like the Vanguard S&P 500 (VOO) and the Invesco QQQ Trust (QQQ) is recommended.