Wall Street has risen after every midterm since 1950 - can 2026 keep the streak?
The S&P 500 has risen in the 12 months following every US midterm election since 1950, according to analysis by JP Morgan Asset Management cited by investment professionals weighing the November 3 vote. The third year of a presidential term has averaged a 16.1 per cent gain across postwar presidencies, the only presidential year to average a double-digit return, said Russ Mould, investment director at AJ Bell.
The historical pattern rests on two theories: presidents have an incentive to boost the economy before the next election, and midterms often produce a lame-duck president whose legislative gridlock lets businesses operate without interference from Washington. Jason Hollands, managing director at Evelyn Partners, said markets are often volatile before the vote but settle once the result is known and investors can focus on policy rather than polling. A divided Congress, which Mould said Donald Trump looks on course to face, could help stocks by making sweeping tax and regulatory changes harder to pass.
Gridlock carries its own risks. Aliasgar Tambawala, co-chief investment officer at Klay Group, warned that a divided legislature may bring greater disruption around the debt ceiling and government funding, while Trump's executive powers on tariffs and his veto would remain largely intact. He said Gulf investors face bigger concerns, notably the Strait of Hormuz, where a durable resolution would augur well for the region.
The bull case faces stiff headwinds. Brent crude has hit $117 a barrel, the Federal Reserve raised rates in September and may do so again in December, and 10-year Treasury yields are approaching 5 per cent, said Madhur Kakkar, chief executive of Elevate Financial Services. The S&P 500's Shiller price-to-earnings ratio ended October at 40.88, a level exceeded only during the dot-com boom, and Alphabet shares fell 13 per cent on October 29, wiping $500 billion off its value after heavy AI infrastructure spending left quarterly free cash flow at negative $9.1 billion. Third-quarter GDP still grew at an annualised 3.4 per cent.
Tony Hallside, chief executive of STP Partners, said clearing the election helps sentiment but does not create earnings growth, and that political clarity will not compensate for disappointing commercial results. Vijay Valecha, chief investment officer at Century Financial, expects AI and interest rates rather than politics to decide how markets finish 2026, pointing to easing inflation and a successful Anthropic IPO as possible catalysts for a year-end rally. He said the IMF expects Gulf output to shrink 4.8 per cent this year because of the Iran war before rebounding 9.1 per cent in 2027, assuming the Strait of Hormuz begins reopening in March 2027.
