Stocks Have Risen a Year After Every Midterm Since 1950. Here’s What That Does and Doesn’t Tell You.

The stock market in the post-midterm election period has been a bumpy ride. On Nov. 5th, the S&P 500 (SNPINDEX:^GSPC) fell by 4.4%, its worst single-day loss since April 2025. It was also the largest market value the index has ever lost in a single day, about $2.9 trillion. The Nasdaq-100 is still 9% below its all-time high, and that's even after a sharp rebound over the past few trading days.

Worries that artificial intelligence (AI) development could slow and rising odds of another Federal Reserve rate hike later this year haven't been helping either. But history provides some perspective, and it could be good news for investors willing to ride out short-term volatility.

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U.S. stocks have a perfect post-midterm record since 1950

According to LPL Research, the S&P 500 has been higher one year after every midterm election since 1950. That's 19 consecutive instances with an average gain of roughly 15%.

The reason is likely uncertainty around the election outcome. Historically, September has been the worst-performing month of the year for the S&P 500. But the results are slightly worse during that month in midterm years, with the index dropping by 0.8% on average.

The fourth quarter has typically been the turnaround point

October and November in midterm years have been among the best times to invest. Since 1950, October has averaged a return of roughly 3% in October and around another 2.7% in November. The fourth quarter has historically been one of the strongest stretches of the entire four-year cycle.

But we haven't seen that in 2026. The market initially repeated history the day after Election Day, but it's been volatile and mostly downhill since. The current macro concerns of inflation, interest rates, and an AI slowdown are outweighing what we've typically seen the market do during this period.

What investors can do now

It might be better to look at each of these three catalysts individually.

Inflation was running at a 12-month rate of 3.7% in September, and it's unlikely to go down anytime soon as long as the Iran war goes on. A resolution to the conflict would almost certainly get a positive reaction from the market, although there's no real indication that that is imminent.

A December rate hike is looking like a near-certainty, but Fed governor Christopher Waller threw a wrench into the engine this week when he said he'd consider supporting a half-point hike next month. Stocks have consistently reacted to Fed policy and interest rates, so expect this to continue being a headwind.

The AI boom is expected to drive strong earnings growth into 2027, but big capital expenditure plans are no longer considered a positive. An eventual slowdown is inevitable, and a change in control of Congress could speed the process.

It's difficult to say whether the historic post-midterm trend will hold this year, but investors who hold through short-term volatility tend to be rewarded. Conditions appear to be lining up against an S&P 500 rally, but earnings results over the next couple of quarters may be the key driver.

In the meantime, investors might want to focus on building their portfolios around quality businesses that can withstand different economic environments.

David Dierking 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.