Opinion: Will the 2026 midterm elections lead to turbulence in markets?

Justin Setser

As the United States approaches the November midterm elections, investors are anticipating the possibility of increased market volatility. Midterms tend to bring uncertainty, shifting policy expectations and fast-changing headlines. Add in today’s backdrop of global tensions, tax-policy changes, a new Federal Reserve chair taking office and a razor-thin Republican majority in Congress, and it is no surprise people are wondering: Will this election year bring market turbulence or just temporary noise?

Midterms often reshape Congress
Mark Twain famously said, “History doesn’t repeat itself, but it often rhymes,” a quote my boss likes to remind me of often. And when we look at past midterm years, there are some familiar patterns. 

Midterm elections land halfway through a president’s term. Historically, they have not been kind to the sitting president’s party. Over the last 23 midterm elections, the president’s party has lost an average of 27 seats in the House and three seats in the Senate. This usually stems from declining presidential approval ratings and strong turnout from voters eager for change. 

Markets typically price in some degree of expected seat loss for the ruling party, but the magnitude of any potential power shift remains a source of preelection volatility.

Strong economy, weak markets
Here’s where things get interesting. Since 1994, U.S. presidents have often enjoyed strong economic growth heading into midterm elections. On average, real GDP growth has hit about 3%, the best of the four-year presidential cycle. 

However, the stock market tells a different story. During those same midterm years, the S&P 500 gained only 1.7% on average, the weakest performance of the four-year cycle. It is a reminder that a healthy economy does not always translate to immediate market gains, especially when political uncertainty is high.

Markets dislike the unknown
The early months of midterm years typically come with choppy conditions. Investors are unsure how the election will shake out, what policies might change and how leadership shifts could affect the economy. But historically, uncertainty does not last. As Election Day approaches, markets have tended to rally. And once the votes are counted, they have often kept rising as the policy picture becomes clearer. 

One of the most striking statistics: The S&P 500 has not posted a negative return in the 12 months following a midterm election since 1938. Also impressive, the three quarters immediately after midterm elections are typically the strongest of the entire presidential cycle.

What this means for investors
Election years can tempt people to step out of the market and wait for clarity. But history shows that trying to time the market often backfires, especially during midterm cycles, when strong post-election returns have been the rule, not the exception. While no two elections are alike, the long-term lesson is consistent: Uncertainty may create short-term volatility, but disciplined, diversified investors have historically been rewarded once the dust settles.

Justin Setser is the senior vice president and regional chief investment officer at Central Trust Co. He can be reached at justin.setser@centraltrust.net.