Midterm Elections and Market Volatility: Historical Insights for Investors in 2026

As we move through mid-March 2026, the U.S. midterm elections on November 3 are still months away, but the political cycle is heating up after the State of the Union address. Campaign rhetoric is building, and investor attention is shifting toward potential implications for the markets.

However, the dominant force driving volatility right now isn't elections—it's the escalating conflict in the Middle East. Disruptions to oil production, attacks on infrastructure, and restrictions through the Strait of Hormuz have sent crude prices surging dramatically. Brent crude has climbed sharply, with reports indicating spikes toward $90–$120 per barrel in recent weeks amid supply concerns and halted tanker traffic. This has fueled inflation fears, pressured economic growth outlooks, and contributed to higher interest rate expectations in some scenarios.

Against this backdrop, it's timely to examine how midterm election years historically influence stocks.

Historical Patterns in Midterm Years

Midterm elections typically see the president's party lose congressional seats. Over the past several decades, the average loss has been around 25–27 seats in the House, with rare gains (only in exceptional cases like 1934, 1998, and 2002). This outcome is often anticipated, yet markets still react to the uncertainty.

Campaigns amplify negative messaging—highlighting economic shortcomings, policy failures, or bold (sometimes unrealistic) proposals—which heightens investor anxiety. Markets dislike prolonged uncertainty, and election years deliver it in spades.

Data since the 1930s shows clear trends for the S&P 500:

• Lower average returns in midterm years—roughly 5 percentage points below non-midterm years in the presidential cycle.
• Higher volatility, especially in the lead-up to Election Day, with muted performance early in the year and often little net gain until closer to November.
• Stocks tend to lag in the initial months, reflecting election fog, but rally in the weeks before and after polls close as uncertainty resolves.

The silver lining? Post-election periods have been robust. The average one-year S&P 500 price return following midterms (since 1950) stands at about 15.4%—nearly double the typical return in other periods. This strength occurs regardless of which party holds the White House, Senate, or House, as reduced political noise allows focus on fundamentals like corporate earnings and growth policies. Administrations often shift toward pro-growth measures in the third year of a term to bolster legacies or position for future cycles.

Current Market Context

Year-to-date in 2026—a midterm year—the S&P 500 has declined modestly, with total returns around -2% to -3% as of mid-March. This aligns with typical midterm-year early weakness, though the primary driver appears to be geopolitical energy shocks rather than pure election anticipation.

Intra-year drawdowns are normal—even in strong years, the S&P 500 averages about 14% peak-to-trough declines. History shows these are often short-lived, and staying invested through them has paid off: Positive annual returns have occurred in most years despite volatility.

Key Takeaways for Long-Term Investors

Elections generate noise, but long-term equity returns are driven by company earnings, valuations, interest rates, and broader economic fundamentals—not Washington alone. Geopolitical risks, like the current Middle East situation, can intertwine with election dynamics and amplify short-term pressures.

The best approach remains discipline: Avoid knee-jerk portfolio changes based on headlines. Maintain diversification, align with long-term objectives, and view periods of stress as inevitable but temporary. As one famous investor noted, more money is lost preparing for corrections than in the corrections themselves.

If you'd like to review how this fits your personal financial plan, reach out anytime.

Sources: LPL Research, "Do Midterm Elections Matter for Markets? A Historical Perspective" by Chris Fasciano (March 18, 2026); Capital Group, "How U.S. midterm elections may affect markets" by Matt Miller and Chris Buchbinder (January 22, 2026). Additional market data referenced from Yahoo Finance, and IEA Oil Market Report (March 2026). Past performance is no guarantee of future results. Indexes are unmanaged and cannot be invested in directly. All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.