As Investors Worry About US Midterm Impact On Markets, A Look At Past Data

Nearly half of the investors in the United States are worried about the upcoming November 3 midterm elections, which happen in the middle of the president's four-year term of office. About 48 per cent of investors are concerned about the impact of the polls on the market, according to a Morgan Stanley survey.

The survey was conducted from October 1 to 23 among 953 investors. While financial experts suggest basing market investments on risk appetite and investment horizon, the upcoming polls appear to be giving jitters to investors, who are already troubled by the ongoing broader market volatility.

Data indicates that investors need not worry too much. While it is impossible to predict market movements, history shows that stocks have generally moved higher after midterm elections in the US.

How Markets Have Fared?

Historical data shows that a unified or a divided government does not necessarily hurt stock market returns. A 50-year analysis by asset manager Janus Henderson has found that the S&P 500 delivered average annualised price returns of 9.24 per cent under a divided government, compared with 8.73 per cent under a unified government. However, market volatility tends to be higher when Republicans and Democrats share power in Washington.

“Higher volatility during years with split control may have been caused by policy uncertainty, but a counterargument is that split government potentially insulated voters and the economy from some of the most ambitious intentions of a single party,” wrote Seth Meyer, global head of client portfolio management for Janus Henderson. “In short, gridlock may be good,” the analyst was cited as saying by CNBC.

The report added that the stock market volatility also tends to rise during midterm election years. A Capital Group analysis has found that median annualised volatility in midterm years has been nearly 16 per cent since 1970, compared with around 13 per cent in other years. This suggests markets may see bigger swings during election periods.

Still, markets have usually bounced back after midterm elections once uncertainty fades. This is supported by investors having broader clarity over the policy and political landscape.

Since 1974, the S&P 500 index has delivered an average return of 5.7 per cent in the three months after the vote. It posted gains in 11 out of 13 years. Over six months, the average return was 12.4 per cent, with gains in all 13 years, according to Schwab's Townsend analysis cited in the report.

In 2026, the index has given 10 per cent returns in year-to-date terms amid broader uncertainty linked to artificial intelligence-related disruption and the Middle East war.