The nine months between Election Day and June 30 have seen the S&P 500 deliver an average return of 15.5% going back to 1950
If history is any guide, stocks should continue higher after the midterms.
The S&P 500 may be only a few percentage points shy of record territory, but a sharp pullback in semiconductors and other hot artificial-intelligence stocks have shaken up many investors.
But better times likely lie ahead. A well-established historical pattern suggests that stocks will likely continue on higher - no matter who wins in November's midterm elections.
Since 1950, the S&P 500 SPX has risen by an average of 15.5% between Election Day and June 30 of the following year, according to an analysis from Matt Cerminaro, founder of Exhibit A, a content platform for financial advisers.
The road ahead might not look all that promising, given the number of looming obstacles that could continue to test the market. Treasury yields remain near their highest levels in decades, even after a rally this week brought the 10-year yield BX:TMUBMUSD10Y back below 5%. The war in Iran is dragging on, and crude-oil prices (CL00) (BRN00) are back up to levels investors haven't seen since May.
Meta Platforms' (META) latest earnings report apparently offered investors little reassurance that the immense sums being spent building AI infrastructure will pay off. And with Anthropic expected to IPO soon, some are worried that a flood of new equity issuance from another mega-offering could overwhelm demand for stocks.
But there are positives, too.
"We've had high oil prices be a catalyst for bear markets in the past; we've had higher interest rates do the same thing. There have been an awful lot of headwinds, but I think earnings have offset these headwind concerns," said Sam Stovall, chief investment strategist at CFRA Research.
Indeed, the biggest U.S. companies have recently been growing earnings at a breakneck pace, and Wall Street expects results should continue to dazzle investors in 2027. And while past returns are no guarantee of future performance, the historical record looks solid.
"The best midterm strategy is to turn off the TV and set a buy order for Election Day," Cerminaro told MarketWatch.
Third year's the charm
Next year brings the third year of the four-year presidential term cycle -historically, the market's strongest period, according to Stovall.
The fourth quarter of a midterm year has seen the second-strongest average performance of the 16 quarters that make up the four-year cycle. The best sector? The first quarter of year three, which is coming up next.
Presidential term cycle Average price % change - Q1 Average price % change - Q2 Average price % change - Q3 Average price % change - Q4 Average price % change - year
Year 1 0.00% 3.20% 1.50% 4.10% 9.50%
Year 2 0.80% -2.60% -0.80% 6.40% 3.80%
Year 3 7.00% 4.70% 0.40% 3.80% 16.30%
Year 4 0.60% 3.20% 1.20% 2.30% 6.80%
All Years 2.00% 2.00% 0.50% 4.20% 9.10%
Source: CFRA
Rather than being a statistical quirk, Stovall said he believes things have played out this way for a reason.
"The reason for this is the party in power wants to stay in power after the upcoming presidential elections," Stovall said. "They start passive stimulative measures that will likely bear fruit by the time the person or the party is up for re-election."
President Trump has already gotten a head start on that. With the help of Republicans in Congress, he delivered landmark tax cuts in 2025. While campaigning for the midterms, Trump said he would pay every American adult a $5,000 "dividend" if Republicans managed to hang on to the U.S. Senate and the House of Representatives.
As the table above shows, stocks typically deliver strong returns during the fourth quarter, even outside of election years. The period has the strongest average return of any of the four calendar quarters, according to Stovall's numbers.
Much of the recent stock-market pain has been centered around technology stocks. For the S&P 500 to deliver returns on par with its historical performance, tech stocks - which carry a weighting in the index of just under 40% - will likely need to participate.
"I haven't worked out the exact mathematics, but it is highly improbable for the S&P 500 to put in a sizable gain without the participation of the largest tech companies," said Steve Sosnick, chief strategist at Interactive Brokers.
-Joseph Adinolfi
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