What history says about 2026 midterm elections and market performance

Investor takeaways

• Letting politics guide investment decisions can be costly. Our analysis shows that investors who would have moved their money out of the market to cash when their political party was out of power would have seen returns cut by half compared to those who stayed invested.
• Annual U.S. stock market returns, on average, have been the weakest in midterm years, but returns in 2026 have proven otherwise: U.S. stocks were up 13% through August, marking the sixth-best start to a midterm year since 1926.¹
• Historically, the market started to rally around one month before elections as polling data began to provide a clearer expectation of the outcome.
• AI and the data center buildout are central themes in the markets and key issues for this election cycle. The policy landscape is evolving quickly and remains an important area to watch.

Election cycle investing during periods of market volatility

Political headlines are becoming increasingly prominent as Election Day nears, which may give investors pause as the markets react. Although investors may be tempted to respond to election-related volatility, the more important lesson from history, we believe, is to stay invested.

The reason? Midterm election years have historically been among the weakest performing years for the U.S. stock market, compared to presidential election years and non-election years, but performance has historically been dispersed by sector – and investors may miss market appreciation if they make decisions based on party.² In this article, we break down stock market performance during past midterm cycles, how this cycle is shaping up and reasons to stay invested no matter the market.

How have stocks performed during midterm election years?

Annual U.S. stock market returns, on average, have been the weakest in midterm years, rising just 7.5% vs. an average of 12.4% in non-midterm years.³ The two most recent midterm cycles (2018 and 2022), in fact, were the weakest years for the S&P 500 since 2008, with returns of -4.4% and -18.1%, respectively.⁴ Yet this year has bucked the trend so far: U.S. stocks were up 13.1% through August, marking the sixth-best start to a midterm year since 1926.⁵ That strength has also coincided with relatively limited volatility, with just 4 days of ± 2% moves in the S&P 500 this year through August, compared to 46 in calendar year 2022 and 20 in 2018.⁶ This has tended to bode well for returns: historically midterm years with fewer than 10 of these big stock movement days have seen a 19.4% calendar year return.⁷

Beyond full-year returns, another historical pattern has emerged around Election Day itself, as shown in Figure 1. Since 1970, the market has rallied on average around a month, or 22 trading days, before a midterm election as polling data provided clearer expectations of the outcome.⁸ As that uncertainty began to fade, equities pulled higher, with an average return of 14.1% in the six months following the election, compared to just 5.7% in non-midterm years.⁹

Election outcomes have also mattered. Scenarios where one party lost control of the political trifecta (holding the presidency and majorities in the House and Senate) saw material underperformance in the six months after midterms (10.4%) compared to when control was gained or Congress remained divided (16.1%).¹⁰ Thus, the market has still rallied, but it was likely hampered in part by the market re-pricing the expected ability of the government to pass legislation.

Figure 1: S&P 500 total return performance, since 1970 indexed to midterm date

AI is a central theme in the markets. What could that mean for election stock market impact?

One political issue that has seen increased attention this cycle is Artificial Intelligence (AI) and data centers. AI investment has been an important strategic and economic priority, but as the scale accelerates at a rapid pace, many are paying attention to the potential impacts of the infrastructure on communities. AI has also been a key theme in our Fall Investment Directions report, where we highlight its expanding role in markets and the economy.

Data centers are central to the buildout of AI and are being built throughout the country. Local concerns have accompanied the buildout as some voters voice opposition given the potential electrical demands of data centers. At the same time, "Bring Your Own Power" initiatives are emerging where those involved in the buildout (such as AI companies and data center developers) are moving toward funding, building or otherwise procuring the capacity needed for their infrastructure.

Policymakers have begun to take notice, with Ohio seeing an expanding number of local ballot measures seeking data center moratoriums and Texas more closely auditing the building process.^{11 12} Meanwhile, some policies are underscoring the “Bring Your Own Power” approach: Virginia’s recently proposed framework supports investment in new, clean energy sources to make it easier for data centers to build their own power supplies. The policy landscape is evolving quickly and remains an important area to watch.

What midterm elections could mean for investor portfolios

For investors, the biggest question is what this history could mean for portfolio decisions now. The historical lesson may be less about predicting periods of volatility and more about avoiding reactive portfolio decisions when they occur.

Since 2013, a $100,000 investment in the S&P 500 would have grown to $398,000 by the start of 2026 if left fully invested. But investors who moved their money out of the market to cash whenever their preferred political party was out of power saw dramatically lower returns - ending with $214,000 (Republican-timed exodus) or $186,000 (Democrat-timed). Letting politics guide investment decisions has come at a significant cost.¹³

That dynamic has also shown up at the sector level. Investors have often mapped sectors to political outcomes, but market leadership has rarely followed a party script. As shown in Figure 2, Energy, for example, was the worst-performing sector under Obama’s presidency and Trump’s first term, yet among the best under Biden and Trump’s second. Meanwhile, Technology has consistently ranked among the top two sectors across the last four presidencies. Sector performance varies - but it has been far less tied to politics than many assume.

Portfolios may be best served when they are built around core, low-cost ETFs rather than narrative-led trading.

Figure 2: Sector performance (average annual return for length of presidency by S&P 500 sector)

Bottom line: Election-year volatility in perspective

Investors may be pausing as the markets react to the 2026 midterm elections. But despite the temptation to react to market uncertainty and potential volatility, the more important lesson could be to stay invested. Rather than making sweeping sector bets based on political assumptions, investors may be better served by focusing on long-term discipline and broad market exposure. For even more on how staying invested in election cycles matters, please check out our Student of the Market: Midterm Election Year Special.