How do markets perform in midterm election years?

Midterm elections are four months away, but investors are already preparing portfolios for the polls. What is the best way to prepare a portfolio for an election? Don’t let it derail your investing discipline and remain focused on the fundamentals.

We highlight four reasons why midterms shouldn’t prompt meddling in portfolios, featured on our Policy Hub:

1. Don’t let how you feel about politics overrule how you think about investing. Data shows that investors tend to feel better about the economy when their political party is in power, and that confidence quickly crumbles when the other party is in control. Yet, average annual returns on the S&P 500 during the Obama administration of 16.3% and during the first Trump administration of 16.0% were almost identical and higher than the average return over the last 30 years of 10.3%. Returns during the Biden administration and second Trump Administration have also been above average. That means investors could have missed out on above average returns if they stayed on the sidelines during an administration they didn’t like.
2. Markets tend to be more volatile with lower returns during midterm years, but not for the reason you think. Since 1937, returns in midterm years were 9.2% on average vs. 13.3% in non-midterm years. Realized volatility was also higher. However, simple averages don’t tell the full story. Midterm years have also coincided with particularly choppy years in the markets: 2018 and 2022 were both midterm years in which the stock market suffered negative returns. However, the selloffs were triggered by the Fed hiking interest rates. Another notable negative midterm year: 2002, as the market bottomed out due to the tech wreck.
3. Markets don’t like uncertainty; elections reduce it. Markets may encounter some bumps along the way in midterm years, but those wrinkles tend to be smoothed out very quickly in the run-up to the election and thereafter regardless of the result. Average returns were slightly negative in each of the three quarters preceding a midterm but then jumped an average of 6.6% in the fourth quarter. History shows that markets begin to rally just under a month before election day, making timing the market a difficult task.
4. Markets and the economy tend to perform well under all configurations of government. Divided government? Republican Sweep? No sweat. Equity markets and economic growth have both performed well under all configurations of government. That’s because monetary policy, labor markets, corporate profits and valuations are much better indicators of future returns.

Ultimately, fundamentals are the most important factor to assess the investing climate, not elections. While political headlines may stir emotions, investing is about tuning out the noise and focusing on a consistent approach. After all, political opinions are best expressed at the polls, not in a portfolio.

By Meera Pandit - July 8, 2026

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