Midterms & Markets

With the midterm elections on November 3, the political ads are everywhere, and a familiar question is starting to come up in our client meetings: Should I do anything with my portfolio before the election?

Our short answer is no. History shows that midterm years can be bumpy for markets, but it also shows that the results of an election have been a poor guide to what markets do next.

Here's what the data says:

The midterm pattern: a bumpy ride, then a better year

Midterm years have historically delivered below-average returns, and the year after has historically been one of the strongest stretches of the four-year presidential cycle. Oppenheimer's review of S&P 500 data since 1948 shows the gap clearly:

The seasonal rhythm matters, too. Midterm years have tended to soften through the summer and early fall, and some of the best months in those years have historically been October and November, as the outcome comes into focus.

An important caveat: 2026 hasn't followed the script. Through September 30, the S&P 500 was up about 13% for the year, well above the typical midterm-year result. The conflict with Iran, the energy price shock and more importantly, strong corporate earnings have simply mattered more to markets than the election calendar. That is a useful reminder that the data in the table above are patterns, not prophecy. 

Why it happens: Markets dislike uncertainty more than any outcome

The likely explanation has little to do with which party wins. The president's party usually loses seats in a midterm, so the months before an election bring open questions about taxes, spending, regulation, and trade. Investors tend to wait for clarity before committing capital.

Once the votes are counted, that fog lifts. Businesses and investors can plan around the new landscape, even if it isn't the one they hoped for. In other words, the post-election bounce has historically come from uncertainty ending, not from a particular result.

Who wins matters less than you might think

It's natural to assume your portfolio depends on how the election turns out. History says otherwise. A shift in power is the norm, not a shock: Going back to 1934, the president's party has lost an average of about 30 House seats in midterms and gained seats only three times.

Even when control of the House changed hands, as it did in 1994, 2006, 2010, and 2018, the S&P 500 was higher a year after each of those elections. Markets have also done well under unified government and under gridlock, which has been the more common arrangement since World War II. In a recent podcast, Professor Scott Galloway shares a story about selling stocks after the 2016 election, given his concerns about the new administration. He parallels the economy to an iceberg. He suggests the government, while still important, represents the tip of the iceberg (~5% of the iceberg) that is visible and above water, while everything underneath the water (the remining ~95% of the iceberg) is the economy, businesses, and consumers that continue to grind on no matter who is in control in Washington.

Over time, stock prices follow earnings, and earnings follow the economy: consumer spending, productivity, and innovation. Politics can nudge those forces at the margins, but it rarely overrides them. Reshuffling a portfolio based on a prediction about voters means making two bets: that you know the outcome, and that you know how markets will react to it. Both are hard to get right.

What deserves your attention instead

Rather than positioning around the election, we'd encourage clients to use this season for the things that reliably make a difference:

• Your time horizon and cash needs. If you'll need money in the next year or two, it should be set aside in less volatile investments, election or not. That way, a rough patch never forces a sale at the wrong time.

• Your allocation. A strong run in some parts of the market this year may have pulled your mix away from its targets. Rebalancing is a disciplined way to take risk off the table without guessing at headlines.

• Year-end planning. Tax-loss harvesting, charitable giving, required minimum distributions, and retirement contributions all have deadlines that arrive shortly after the election (keep an eye out for our quarterly newsletter which highlights our year-end financial planning checklist). Those decisions have a far more predictable payoff than any political forecast. 

• Your own reaction to volatility. If campaign-season swings are keeping you up at night, that's worth a conversation about whether your portfolio still fits your comfort level.
  

At LVM, our research process focuses on the fundamentals of the businesses we own: their earnings, balance sheets, and long-term competitive position. Those fundamentals don't change on election night, and neither does our approach.

-The LVM Team