James D. Ragan, CFA, Co-CIO Wealth Management Research, Director of Investment Management & Research
The 2026 midterm election season is less than three months away. While not a presidential election, party control of the U.S. Congress is on the ballot. On a national level: all 435 U.S. House of Representative seats are up for grabs, as are 35 of the 100 Senate seats. Numerous state and local votes are also scheduled for governors, state and local representatives, city council members, and mayors, among others. We see an active news cycle already, which will only intensify as election day—Tuesday, November 3—approaches. Election results can lead to policy changes, and change breeds uncertainty. In financial markets, uncertainty often drives volatility and can leave investors on edge, but election angst should not become investment angst. Most investors should resist making broad portfolio decisions due to election predictions and short-term volatility.
In our view, portfolio construction and diversification principles are much stronger than political discourse and election uncertainty. From December 31, 1999, to July 31, 2026, the S&P 500 equity index produced a compounded annual return (including reinvested dividends) of +8.3%. This period of more than 26.5 years has included seven presidential elections and six presidents (three Republicans and three Democrats). Adding to those presidential elections were six midterm elections for a total of 13 national elections. Of those, the party control of one or both chambers of Congress changed nine times. This same period also included severe S&P 500 market declines in 2001 and 2002, the Global Financial Crisis of 2008, the pandemic recession of 2020, and a technology bear market in 2022.
Through it all, corporate America remained resilient, implementing capital investment and innovation, creating new jobs for the labor force, and contributing to growth in the U.S. economy. Equity markets recovered from those declines, ultimately moving to new highs. While stocks and sectors can endure periods of underperformance, elite companies will often emerge from downturns in enhanced competitive positions leading to future market share growth. Markets can handle the uncertainty, as we have been here before.
Both polls and prediction markets expect a change in party control this year. As of June 2026, Republicans hold a slim majority in the U.S. House of Representatives, with 218 seats to Democrats’ 212 (four seats are vacant). In the Senate, Republicans hold a 53 to 47 advantage. According to a recent1 election poll compilation, Democrats have a +7.1 point advantage (48.6% to 41.5%) in taking control of the House of Representatives. The same poll sees a 50/50 balance in the Senate (in which case the Republicans receive the tiebreaking vote). Prediction markets2 see a 50% chance that Democrats will control both the House and the Senate, and a 38% chance that Democrats take the House, but Republicans keep the Senate (and a 13% chance Republicans keep both). Polls have not changed much in the past few months, and markets have had time to consider a change in control.
Change in party control at a midterm election is common. Since 2002, party control of one or both chambers of Congress has changed following every midterm election—spanning six consecutive midterms—and flipped in the two most recent presidential elections as well (2020 and 2024). Although politics may have become more divisive, investors have successfully navigated periods of change and uncertainty over many cycles this century.
Midterm years are historically volatile, but post-midterm years are historically strong. Dating back to 1968, the second year of a president’s term (the midterm year) has produced the lowest average annual return for the S&P 500 equity index, with half the years positive and half negative (seven positive years and seven negative years out of 14 midterms starting in 1970). But the third year of a president’s term produces the highest average return across presidential four-year terms, and was positive in 13 of 14 presidential terms, starting in 1971. According to data from Strategas Research, the S&P 500 has posted a 12-month gain following a midterm election (November to November) in every midterm since 1942 (20 times). This suggests that markets during midterm years at some point will reflect election uncertainty, but then volatility fades as investors emphasize economic growth and earnings and deemphasize potential changes in government policy.
Equity market returns are not highly correlated with party majorities. Starting in 1945 (post-World War II) through 2025 (81 years) there have been 41 years with a Republican president and 40 years with a Democratic president. The average annual S&P 500 price return (not including dividends) was positive for presidents of both parties, with the average annual gains higher for Democratic presidents. When adding in control of Congress, returns have been higher when Republicans control both chambers of Congress, but with a split Congress, returns under Democratic presidents were better. Since 2000, we have not seen a strong correlation between either a new president or change in congressional control and S&P 500 volatility the following year. We conclude that election results and party control are not an accurate predictor of equity market returns following the election.
While each individual investor has unique investment considerations tied to portfolio construction and asset allocation, having portfolio objectives and goals that provide a framework to support long-term success will help navigate any volatility caused by external forces, including geopolitical events and political drama.
1 Compilation from Real Clear Politics as of August 9, 2026.
2 Polymarket, as of August 12, 2026.
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Market Indices: The information on indices is presented for illustrative purposes only and is not intended to imply the potential performance of any fund or investment. Indices provide a general source of information on how various market segments and types of investments have performed in the past. Index performance assumes the reinvestment of all distributions, but does not assume any transaction costs, taxes, management fees, or other expenses. You may not invest directly in an index. Past performance is not an indicator of future results. The S&P 500 Index is a market cap weighted index that is designed to measure the US large-cap equity performance. The index is composed of the 500 leading publicly traded US companies based on size, liquidity, industry, and profitability criteria. S&P 500 compounded annual return from 12/31/22 to 7/31/26 used data from FactSet and closing prices for the S&P 500 on the last trading day of each calendar year. Total return includes the impact of reinvested dividends as paid each year.
Data on the 2026 political party contribution of the U.S. Congress comes from House Radio Television, Correspondent’s gallery, June 2026.
We referenced seven presidential elections since 2000. These were elections held in November each year in 2000, 2004, 2008, 2012, 2016, 2020, and 2024. The six presidents in that time were Bill Clinton, George W. Bush, Barack Obama, Donald Trump term 1, Joe Biden, and Donald Trump term 2. Periods of market and/or economic weakness 2001 and 2002 when the price return of the S&P 500 for those two years was -13.0% and -23.4%, respectively. During the Global Financial Crisis in 2008 the S&P 500 declined -38.5%. During the pandemic recession in 2020 the S&P 500 increased +16.3% for the calendar year, but during the year, from 2/20/20 to 3/23/20 the S&P 500 dropped -33.9%. In 2022, the S&P 500 declined -19.4% and within the index, the S&P 500 Information Technology sector declined -8.9%. We define a bear market (which can be applied to a stock or an index) as a peak-to-trough decline (using closing prices) of -20% or more.
Data on the party control of current and past Congress can be found at senate.gov and house.gov. Information on past presidential results in the electoral college were provided by 270towin.com. Real Clear Politics is owned by Real Clear Media Group, and it serves a news and polling aggregator by analyzing polling results from multiple qualified sources. We believe it can be used as an indicator of trends and sentiment, not necessarily of final results.
Party control changes occurred in the following midterm since 2000. The midterm year is the listed year while the Congress is seated in January of the following year. In 2002 Republicans flipped the Senate (it had been controlled by Democrats), in 2006 Democrats flipped the House and the Senate, in 2010 Republicans flipped the House, in 2014 Democrats flipped the House, in 2018 Democrats flipped the House, in 2022 Republicans flipped the House.
Polymarket is an online prediction market where participants buy and sell contracts tied to future events. The price of a contract reflects the market's collective estimate of the probability that an event will occur. It aggregates the views of thousands of participants into a continuously updated estimate of the likelihood of future events. Its election markets are often viewed as a real-time measure of political expectations because participants can profit if their forecasts are correct.
Using data from FactSet and the S&P 500 index and D.A. Davidson calculations, we computed the average annual returns of the index for all four years of each presidential term starting in 1968 through 2025. The average annual price return of each four-year term was as follows, year 1: +9.8%, year 2: +0.6%, year 3: +16.9&, year 4: +8.6%.
We analyzed S&P 500 each year since 1945 to compare annual price returns of the S&P 500 based upon political party control of the president and House of Representatives and Senate (Congress). The average annual price return under a Democratic president was +11.4%; the average under a Republican president was +7.3%. When Republicans had control of 2 of the 3 or 3 of the 3, the average return was +8.6% and Democrats 2 of 3 or 3 of 3, the average return was +9.4%, but a smaller subset of complete control (3 of 3) Republican returns were +10.7% and Democrats +9.3%.