Will the Stock Market Crash in 2026? History Says It May Happen as This Event Draws Near.

The U.S. stock market is having another fantastic year. The S&P 500 (SNPINDEX: ^GSPC) is up 11% in 2026. If the benchmark index simply stays at its current level, it will mark the fourth straight year of double-digit gains, something that last happened during the dot-com bubble in the late 1990s.

However, the S&P 500 tends to drop sharply around midterm elections, and the stakes are particularly high this year because the Democrats could win control of the House, leaving Congress split. That would make it very difficult for the Trump administration to pass major legislation, which means midterms are a major source of policy uncertainty.

Here's what investors should know.

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History says the stock market could drop sharply around the midterm elections

Since its creation in 1957, the S&P 500 has consistently performed poorly during midterm election years. The index has suffered an average intra-year drawdown of 18%, and those declines almost always came in the third or fourth quarters. In other words, history says the S&P 500 will close 18% below its high at some point in the remaining months of 2026.

Also noteworthy, 17 midterm elections have occurred since the S&P 500 was created in 1957. In those years, the index fell into market correction territory 12 times and it dropped into bear market territory six times. That puts the odds of a correction and bear market at about 70% and 35%, respectively, in the months ahead.

What explains that pattern? Midterm elections create uncertainty. The political party that controls the White House almost always loses seats in Congress, leaving investors to wonder about the future direction of fiscal, trade, and regulatory policies. The stock market responds poorly to uncertainty.

But there is some good news. That uncertainty tends to dissipate quickly. Carson Research says the six-month period following midterm elections (November to April) has historically been the strongest period of the four-year presidential cycle. The S&P 500 has returned an average of 14% during those six months.

Should investors sell their stocks to avoid volatility around the elections? Absolutely not. Past performance is never a guarantee of future results. The S&P 500 may keep climbing in the remaining months of the year. And even if the stock market crashes, attempting to time the bottom is dangerous.

Wall Street says the S&P 500 is headed much higher in the next year

S&P 500 companies reported exceptionally strong financial results in the first quarter. And Wall Street expects that momentum to continue, driven by massive investments in artificial intelligence. The consensus estimate says S&P 500 earnings will increase 24% in 2026, the fastest growth rate since 2021.

In turn, many analysts expect stocks to climb higher over the next year. Wall Street's median target price puts the S&P 500 at 8,989 by July 2027, according to FactSet Research. That implies nearly 19% upside from its current level of 7,575.

Some analysts have compared the AI boom to the dot-com bubble, but valuations are much more reasonable today. The S&P 500 trades at 20.5 times forward earnings, a modest premium to the 10-year average of 19 times forward earnings. Comparatively, the S&P 500 traded near 25 times forward earnings at the height of the dot-com bubble.

Here's the big picture: Investors should not sell stocks indiscriminately simply because midterm elections are approaching. S&P 500 companies are forecast to report fantastic financial results this year, and that leaves room for the index to move higher, especially because valuations are quite reasonable.

Of course, that does not preclude the possibility of a stock market drawdown, or even a stock market crash. Uncertainty surrounding midterm elections could certainly bring the S&P 500 lower in the remaining months of the year, perhaps substantially so. But investors should treat any meaningful dip as a buying opportunity.

Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends FactSet Research Systems. The Motley Fool has a disclosure policy.