TLDR
- Charles Schwab found the S&P 500 rose in the six months after all 13 midterm elections studied, averaging 12.4%.
- Kalshi puts the odds of Democrats winning both the House and Senate at 73%.
- Coin Bureau data shows average gains of 17.5% six months after midterms that shifted control of Congress.
- Morgan Stanley says the stock market correction that began in June may be nearing its final stages.
- Inflation concerns, high energy prices and tensions involving Iran remain risks for investors.
US voters head to the polls on November 3 for the midterm elections. Investors are watching how a possible shift in power in Washington could affect the stock market.
President Donald Trump could lose Republican control of Congress. Axios reported that prediction market Kalshi puts the chance of Democrats winning both the House of Representatives and the Senate at 73%.
That result would give the opposition control of Congress for the last two years of Trumpās term. Analysts say past elections offer some clues about what could follow for stocks.
S&P 500 History After Midterm Elections
Coin Bureau shared data on how the S&P 500 has performed after midterms that changed which party controls Congress. It said the index gained an average of 2.1% after one month and 10.7% after three months.
The average gain was 17.5% after six months and 15.5% after one year. Coin Bureau said this situation has happened seven times since 1954.
The index was higher one year later in all seven cases. The platform did not explain how it calculated the figures.
Research from Charles Schwab found the S&P 500 gained an average of 12.4% in the six months after midterm elections from 1974 to 2022. The index rose in all 13 of those periods.
Over three months, the average gain was 5.7%. The index rose in 11 of the 13 periods.
One explanation is that elections remove political uncertainty. Investors can then focus more on company earnings, economic growth and interest rate policy.
A divided Congress can also make it harder to pass large new laws. That may give businesses a more predictable setting.
Past results do not guarantee future returns. Economic conditions differ from one election cycle to the next.
Morgan Stanley Sees a Possible End to the Correction
Morgan Stanley published a research update on November 2, one day before the vote. Its strategists said the US stock market correction that began in June may be nearing its final stages.
The bank said large-cap US stocks have gained about 15% in the six months after midterm elections. It also said a Democratic win is already largely reflected in market expectations.
In its view, removing election uncertainty may matter more than the result itself. Some conditions remain difficult for investors.
US stocks have faced pressure from concerns about artificial intelligence spending and company valuations. Geopolitical instability has also weighed on the market.
Higher Treasury yields and elevated energy prices have raised doubts about inflation. They have also created questions about the Federal Reserveās next interest rate decisions.
Renewed tensions involving Iran, possible trade tariffs and disputes over government spending could also hurt investor confidence. A Democratic sweep could lead to more political fights over federal budgets, regulation and the debt ceiling.
With a Democratic win already widely expected, the election result alone may not provide enough of a catalyst for a lasting rally. Corporate earnings, inflation and Federal Reserve policy are expected to shape how the S&P 500 performs into 2027.
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