Markets care about elections because elections can alter the expected path of fiscal policy, regulation, taxation, government spending, and the broader policy environment in which businesses operate. That importance often shows up in the form of pre-election hesitation, as investors wait for uncertainty to clear, followed by post-election relief once the range of possible outcomes narrows. This does not mean elections mechanically determine market returns, but they can influence risk appetite, discount rates, and investors’ willingness to look through near-term policy uncertainty.
For that reason, we distinguish between the periods before and after 1982. The earlier postwar decades reflected a fundamentally different investment environment, shaped by higher structural inflation, less globalized capital markets, lower household equity ownership, and a more limited role for financial markets in the broader economy. Since the early 1980s, the secular decline in interest rates, the expansion of retirement investing, the globalization of capital markets, and the emergence of 24-hour financial and political news have made markets more responsive to policy developments and elections more relevant to investors than they were during much of the postwar period.
The historical record suggests that investors often adopt a wait-and-see approach as midterm elections draw near. While there is little evidence of widespread selling ahead of Election Day, equity returns have generally been more subdued during the months immediately preceding the vote. Since 1946, the S&P 500 has generated an average return of 0.8% in July, followed by a cumulative gain of just 0.7% over the August through October period. Restricting the analysis to the period since 1982 yields a similar conclusion. Average July returns have been 0.2%, while the market has advanced 2.0% over the final three months before the election. Although every election cycle is unique, the consistency of these relatively muted pre-election returns suggests that investors often defer larger portfolio decisions until the election outcome, and the resulting policy landscape, become clearer.
Exhibit 1: S&P 500 Performance prior to mid-term elections
Source: ICG Advisors
If the months leading up to a midterm election are characterized by investor caution, the period immediately afterward has historically reflected renewed confidence. As shown in Exhibit 1, the S&P 500 has produced meaningfully stronger returns during the six months following midterm elections than during the months immediately preceding them. Since 1982, the index has generated an average return of 12.3% between November and April, compared with 2.0% over the August through October period. The pattern is similarly evident over the full postwar sample, with average post-election gains of 14.3% versus 0.7% during the final three months before Election Day. Perhaps more importantly, this post-election acceleration in returns has remained remarkably consistent despite the fundamental changes in financial markets, capital flows, investor participation, and the information environment that have occurred since the early 1980s. The evidence suggests that while the market environment has evolved considerably, the tendency for investors to respond favorably once electoral uncertainty has been resolved has remained largely unchanged.
The historical record also suggests that the degree of post-election relief has depended on whether the election altered the overall structure of government. As shown in Exhibit 2, the strongest post-midterm returns have historically occurred when control of the White House, House of Representatives, and Senate remained unchanged following the election, regardless of which political party held those institutions. Since 1982, the S&P 500 has generated an average return of 21.2% during the November through April period when the structure of government was unchanged, compared with 8.9% when at least one branch changed political control. A similar relationship is evident in the earlier postwar period, with average returns of 16.1% and 8.1%, respectively. While the sample size is naturally limited, the consistency of these results suggests that investors have historically placed a premium on policy continuity. Markets appear to respond less to which party wins than to whether the election produces a stable and predictable policy environment.
Exhibit 2: S&P 500 Performance post mid-term elections
Source: ICG Advisors
The current political backdrop also has relatively few historical precedents. Since World War II, there have been just three prior midterm elections that began with Republicans controlling the White House, House of Representatives, and Senate, as is the case today. In each instance, voters shifted control of at least one chamber of Congress, ending unified Republican control following the election. Despite those political changes, the S&P 500 generated an average return of 11.8% during the subsequent November through April period. While three observations are far too few to draw definitive statistical conclusions, they provide useful historical context and reinforce the importance of viewing today’s election cycle within a broader historical framework rather than through the lens of a single political narrative.
Looking ahead to the 2026 midterm elections, the historical record offers a useful framework rather than a forecast. Current polling and historical midterm patterns suggest that Democrats have a reasonable probability of regaining control of the House of Representatives and remain competitive in their effort to regain the Senate. Such an outcome would be consistent with each of the three previous postwar midterm elections that began with unified Republican control of the White House and both chambers of Congress, all of which resulted in Republicans losing control of at least one chamber. If history is any guide, however, investors should focus less on which party ultimately controls Congress and more on the likelihood that the election will reduce uncertainty surrounding the future policy environment. While shifts in congressional control may influence the legislative agenda, the broader historical evidence suggests that markets have generally responded more favorably to the restoration of political clarity than to any particular partisan outcome.
As always, stay tuned.
Ardavan Mobasheri
Chief Economist