Investors approaching Tuesday's midterm elections face an uncertain market, but historical results suggest stocks have often gained once voting is over. A CNBC analysis of S&P 500 performance following elections from 1980 through 2024 found that advances a year later were common across different political outcomes, including divided government and single-party control.
The index gained an average of 13.7% in the year following midterm elections and 13.8% following presidential elections. One-year returns were positive in 91% of the cases examined, and all 11 midterms between 1982 and 2022 were followed by gains over that period. Combining both types of elections, average returns were 0.2% after one day and after one week, rising to 1.1% after a month.
Results immediately after voting were less consistent. Presidential elections, in particular, produced slightly negative average returns after both a day and a week. Ryan Detrick, a CNBC contributor and Carson Group's chief market strategist, told CNBC that getting past an election can ease investor anxiety. He described the end of the contest as a relief that often helps markets perform well.
Divided government was associated with stronger average annual gains. Across 10 midterm and five presidential elections that left control split between the parties, the S&P 500 advanced an average of 15% after a year, with positive returns in 14 of those 15 instances. Elections resulting in unified party control were followed by an average gain of 11.5%. Detrick said investors can be less comfortable with sweeping victories because they concentrate power and allow greater spending.
One possible outcome on Tuesday, Democrats controlling both chambers of Congress while a Republican holds the presidency, also has historical precedents. Following the midterms of 1986, 1990 and 2006, which produced that arrangement, the index fell an average of 0.5% on the reaction day. It subsequently averaged gains of 3.4% after a month and 10.9% after a year.
Election timing, however, does not establish what drives returns. The dotcom bust helped push the S&P 500 down 22.1% in the year after the 2000 elections, the weakest post-election result since 1980. The strongest was a 38.3% rise after the 2020 elections, as stocks recovered from the COVID-related selloff. Société Générale says Federal Reserve policy and corporate earnings ultimately carry more weight than elections.
The 2018 midterms illustrate that distinction. Democrats took the House during President Donald Trump's first term, while the Fed raised interest rates four times that year. Stocks fell after the vote, and the S&P 500 finished the calendar year down 6.2%. Measured a year from the election, however, it had gained 11.7%.
Current uncertainties include artificial intelligence investment, further technology stock declines, rising global bond yields, France's debt troubles and the risk of escalation in the war with Iran. Detrick said continued AI momentum and economic growth would support the bull market. Deutsche Bank's global head of macro and thematic research, Jim Reid, cautioned in a note: "Seasonality isn't destiny."
