Democrats Sweep Congress: What History Says Comes Next for Stocks

Nov. 3, 2026, was a huge night for the Democrats, who decisively won a majority in both the U.S. Senate and the House of Representatives, as well as important governorships in key states like Texas and Pennsylvania. While the market saw some big moves in the immediate aftermath of the election results, history paints an interesting picture about where the S&P 500 (SNPINDEX:^GSPC) could be headed in the coming years.

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First, the good news. Historically, stocks perform very well in the 12 months following midterm elections. In fact, when you break the market into election cycle years that run from November to November, the period after midterms is the strongest by a wide margin.

Since 1938, the S&P 500 has produced a gain in the 12 months following midterm elections 95% of the time, and since 1950, it has averaged a 14.5% annual return.

The next-strongest year of the political cycle tends to occur in the 12 months before the presidential election, with the S&P averaging a 9.1% return since 1950. That would be November 2027 through November 2028 in this upcoming cycle.

Data source: Haver Analytics and Fidelity Investments. Periods: November to November since 1950.

More immediately, historically, the fourth quarter in general tends to be the best one for stocks overall, with the S&P 500 up 80% of the time, with an average gain of 4.2% since 1950. Those returns tend to be even stronger in midterm election years, with the benchmark index up 82% of the time, with an average gain of 6.6%.

After midterm elections, the first and second quarters of the following year are also historically very strong. Since 1950, the S&P has risen in Q1 after midterm elections 95% of the time, with an average return of 7.4%, while in Q2, the index has risen 74% of the time, with an average annual return of 5%.

Data source: Carson Group. Quarterly S&P 500 performance after midterm elections since 1950.

That all points to potentially robust returns for the market ahead. But what about the big one-day sell-off the market saw after the election?

Historically, large single-day market sell-offs are often followed by strong returns the following year. In fact, after the 10 worst one-day declines in the S&P 500 since 1981, the S&P has generated positive returns 90% of the time over the next year and positive returns of over 20% 80% of the time.

The market has also rebounded to its pre-sell-off level within 60 days 80% of the time. That's another positive indicator for stocks.

The bad news, however, is that stocks tend to perform worst when there is a Republican president and a fully controlled Democratic Congress. According to Carson Investment Research, since 1951, the market has generated an average annual return of 4.9% when there has been a Republican president and a fully controlled Democratic Congress.

The market much prefers a split Congress, with the S&P 500 generating a 17% yearly return when there is a Democrat president and a split Congress and a 13.7% return when there is a Republican president and a split Congress. Essentially, the market tends to prefer gridlock in Washington.

Data source: Carson Research Group. Average S&P 500 returns since 1951.

How should investors position themselves?

With a shift in the political landscape, there will likely be sectors that will both outperform and underperform. Much of the attention is on the tech sector and the ongoing AI build-out, and for good reason.

Stocks tied to AI now dominate the top holdings of the S&P 500, and where these stocks head, the benchmark index is sure to follow. Meanwhile, many newly elected officials have spoken out about the current AI data center build-out, calling for a moratorium.

However, I wouldn't let this rhetoric scare you from investing. The horse has already left the barn when it comes to AI, and there is no getting it back into its stable. These top companies remain well-positioned to continue leading the market higher over the next decade.

As such, I'd stick to dollar-cost averaging into top index exchange-traded funds (ETFs), like the Vanguard S&P 500 (NYSEMKT:VOO), which tracks the S&P 500, and the Invesco QQQ Trust (NASDAQ:QQQ), which mimics the tech-heavy Nasdaq-100 Index, as well as investing in top AI stocks on any dips.

Geoffrey Seiler has positions in Invesco QQQ Trust and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.