Will Midterm Elections Cause the Stock Market to Plunge? 75 Years of History Offer an Unexpected Answer.

Although Donald Trump's presidency has brought about some of the stock market's wildest vacillations in history, there's no denying that the timeless Dow Jones Industrial Average (DJINDICES:^DJI), broad-based S&P 500 (SNPINDEX:^GSPC), and growth stock-dependent Nasdaq Composite (NASDAQINDEX:^IXIC) have generated outsize returns under Trump.

The Trump bull market has been fueled by the evolution of artificial intelligence (AI), better-than-expected corporate earnings, and record share buybacks powered by the president's Tax Cuts and Jobs Act (TCJA), which permanently lowered the peak marginal corporate income tax rate from 35% to 21%. But history shows that bull markets aren't indefinite, with catalysts always waiting in the wings to trip up the stock market.

Midterm elections are less than eight weeks away. Image source: Official White House Photo by Molly Riley.

One of Wall Street's biggest uncertainties is right around the corner. In 52 days, on Tuesday, Nov. 3, Americans will head to the polls or mail in their ballots for the 2026 midterm elections. While President Trump's term extends to Jan. 20, 2029, the makeup of both houses of Congress by early January 2027 is very much in question.

Could rearranging the puzzle pieces in Congress cause the stock market to plunge? Three-quarters of a century of historical precedent offers an unexpected but ultimately pleasant answer.

Congressional shake-up is expected in November

As of this writing on Sept. 9, Republicans hold a unified government. In addition to controlling the White House, they hold 53 of 100 seats in the Senate and 218 of 435 seats in the House of Representatives.

Unified governments make it considerably easier to pass major legislation. The first two years of each of President Trump's non-consecutive terms have featured a unified government. Not surprisingly, the president was able to sign two massive pieces of tax and spending legislation into law.

The aforementioned Tax Cuts and Jobs Act (December 2017) permanently lowered the peak marginal corporate income tax rate, while the "Big, Beautiful Bill" (July 2025) made the TCJA's personal tax brackets permanent.

If Republicans lose one or both houses of Congress, passing major legislation becomes considerably tougher, if not impossible. It also complicates debt-ceiling negotiations, which can lead to government shutdowns. While previous government shutdowns haven't caused the stock market to plunge, they have added to near-term uncertainty.

BREAKING: Markets now expect the Democrats to sweep both the House and Senate in the 2026 midterm elections.

Less than one year ago, Democrats had just a 20% chance of sweeping the midterms.

Election day is 63 days away. pic.twitter.com/MKXR0EkB0u

— The Kobeissi Letter (@KobeissiLetter) September 1, 2026

According to prediction markets, the odds are heavily in favor of Democrats picking up seats on Nov. 3 and reclaiming one or both houses of Congress. Polymarket odds on Sept. 9 showed a 51% chance of Democrats winning both houses of Congress, with a 36% probability of Democrats taking the House and Republicans retaining the Senate. Either way, the odds are very much in favor of a congressional shake-up in 52 days.

Furthermore, history tells us that a sitting president's party almost always loses seats in midterm elections. Over the previous 23 midterms, the party in the White House has lost seats in 20 of them.

The case for a stock market plunge is simple: rearranging the puzzle pieces can lead to congressional gridlock. But 75 years of history tell a different story.

Image source: Getty Images.

Midterms lead to heightened volatility, but there's a massive catch for year-six presidents

Volatility is nothing new under President Trump. The five-week COVID-19 crash of February-March 2020 and the tariff tantrum in early April 2025 delivered some of the largest short-term percentage swings ever seen in the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite.

From a statistical standpoint, midterm election years are known for heightened uncertainty and more significant drawdowns in equity markets.

Last November, Carson Group's Chief Market Strategist, Ryan Detrick, posted a data set on X (formerly Twitter) that examined the peak-to-trough declines of the benchmark S&P 500 in midterm election years. Since 1950, the average intra-year correction during midterm years has been 17.5%, which is an outsize drawdown relative to the other three years of a president's four-year term.

Get ready to hear a lot about this, but midterm years tend to see their ultimate low later in the year and have some of the largest intra-year corrections.

The good news? Since 1950, off those lows stocks have never been lower a year later and up more than 30% on average. pic.twitter.com/WuWr8vWCJN

— Ryan Detrick, CMT (@RyanDetrick) November 16, 2025

While that might not sound like the best news, Detrick, in a separate post on X, noted there's quite a disparity in stock market performance between the second year and the sixth year of a president's term.

Dating back 75 years, there have been six presidents, including Donald Trump, elected to two full terms (Richard Nixon not included, as he was removed from office in August of his sixth year). While year two has been dicey, with the S&P 500 declining under Bill Clinton, George W. Bush, and Donald Trump, year six of every two-term president has been decisively green.

On average, year six of a second-term presidency since 1950 has delivered a nearly 21% gain in the S&P 500. For added context, the S&P 500 was up 11.6% year-to-date through the closing bell on Sept. 9.

Yes, everyone is aware that midterm years historically aren't that great for stocks.

But we noted many times it is first terms when trouble happens.

Stocks have been up 20% on average and never lower year six of the previous five Presidents. pic.twitter.com/6BFmfd5C6p

— Ryan Detrick, CMT (@RyanDetrick) July 6, 2026

If this trend continues in 2026, it'll likely be due to two factors.

First, political gridlock could be viewed as a positive from an investment standpoint. While a split Congress makes debt-ceiling negotiations more uncertain, the lack of major legislation coming down the pipeline adds a degree of certainty that Wall Street and investors tend to appreciate.

Secondly, the importance of the AI infrastructure build-out (pardon the pun) trumps midterm elections. While the latter will have more of a practical impact on households, the AI data center build-out, coupled with ongoing earnings beats, has laid the foundation for one of the strongest bull markets in history.

While a stock market plunge remains a possibility this year, history says that midterm elections are unlikely to be the catalyst.

Sean Williams has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.