With the midterm elections just around the corner, a common question is how the midterms could affect the markets. The answer may be a little different from what you'd expect.
There are three things to know about midterm elections and the stock market. First, the results of the midterms typically don't have a major impact on the markets. Second, the midterms themselves often do. The third, we'll get to in a minute.
What History Shows About Midterm Elections and Stock Market Returns
At first glance, those first two points may seem contradictory. But history, while never a guarantee of the future, offers a useful picture. U.S. Bank reviewed market data covering 31 midterm elections from 1900 through 2025.1 In the 12 months before a midterm, U.S. stocks averaged a 2.9% return, compared with 8.9% across all years in the study. In the 12 months after, they averaged 12.4%, and 17.5% for midterms since 1980.1 (The study measures the U.S. stock market using the Dow Jones Industrial Average through 1928 and the S&P 500 after that.) Plenty of outlier years push these averages up or down, but the pattern has shown up often enough to be worth noting.
In other words, the markets have historically tended to perform better once the midterms are over.
Why Election Results Matter Less Than You Might Think
Which party wins, however, hasn't made much of a difference historically. The same research found that since 1948, average three-month S&P 500 returns were 2.42% under one-party control of the White House and Congress and 2.17% under mixed control, a difference that wasn't statistically significant.1
That makes sense when you think about it. The two parties may bring very different policies to the table, but the markets are driven by dozens of factors, and politics is just one of them. That's why it's rarely worth worrying about how the midterms will play out where your investments are concerned. It doesn't mean we should ignore them entirely, though.
Market Risks Worth Watching Heading Into 2027
First, past performance is not indicative of future results. Just because the markets have typically behaved a certain way doesn't mean they always will, and it's never hard to find potential sources of volatility:
A narrow bull market. AI-related stocks have been carrying a growing share of the market's gains this year, and by one estimate now make up close to half of the S&P 500 by market value,2 prompting some concern about a possible "AI bubble." Meanwhile, as of the end of September, 44% of stocks in the S&P 500 were down at least 20% from their 52-week highs.3 In other words, nearly half the stocks in the index are in bear market territory, even as headline gains look impressive.
Inflation and interest rates. Stubborn inflation can feed rising interest rates, and higher rates can have a chilling effect on the economy and, in turn, the markets.
The odds of a correction. There have been 56 market corrections (a drop of 10% or more from a recent peak) since 1929, or roughly one every 1.7 years on average.4 The most recent was in the spring of 2025. With some metrics suggesting stock valuations are nearing all-time highs, it's worth remembering that corrections are always possible.5
The bottom line: there are no guarantees about how the next 12 months will go. Post-midterm years have averaged positive returns historically, but that's no guarantee for 2027, and recent storylines provide plenty of reasons to be cautious.
The Real Reason Midterms Move the Markets: Uncertainty
That brings us to the most important reason not to ignore the midterms: they offer a chance to reflect on an important truth about investing. If the midterms have a sizable effect on the markets but the results don't, why do markets tend to do better once the elections are over?
That's the third thing to know. One likely reason the midterms matter to the markets isn't politics, but uncertainty: over which party will be in power, which policies will or won't be enacted, and how it all might affect spending, taxes, and regulation. It's not the results that matter so much as the transition from uncertainty to clarity.
Business leaders feel it, too. In a 2023 survey, CEOs ranked political uncertainty as the greatest risk to business growth.6 And in a survey from earlier this year, 43% of U.S. CEOs named uncertainty as the top threat facing their companies.7
Uncertainty Acts Like a Brake Pedal
Think about driving in daylight somewhere familiar versus driving at night in a city you don't know. Chances are you drive more slowly and cautiously in the dark. Your skill hasn't changed, and neither has your car, but your behavior has, all because of uncertainty. And it takes longer to get where you're going.
The markets work the same way. When the road ahead is unclear, investors may slow down, stop, change direction, or get out of the car entirely, and growth slows or even turns negative. When the road looks clear, investors tend to step on the gas. That may help explain why the markets have often done better after the midterms than before.
What the Midterms Can Teach Us About Investment Decisions
This matters for our own decision-making, too. Think about decisions you've made in the past. Did you wait until you felt certain of the outcome? Did you ever choose the more cautious option simply because you were unsure?
Now think about the decisions ahead: about retirement, about when to spend and when to save, about insurance or estate planning. Sometimes it makes sense to wait for clarity. Other times, we need to be ready to act even when we feel unsure.
That's why it's so important for investors to have rules, processes, and strategies that guide their decisions. We won't always be able to wait for an event to pass before acting, and we won't always know how a decision will turn out before we make it. In the end, successful investing requires knowing ourselves more than knowing the future: what we truly value, which risks we're willing to take and which we aren't, and which habits and commitments we need to stick with over the long term, even when short-term uncertainty tempts us to abandon them.
That's what is truly important about events like the midterms. Not so much what they mean for the markets, but what they reveal about ourselves.
How Hilltop Wealth Advisors Approaches Market Uncertainty
At Hilltop Wealth Advisors, we build financial plans and investment strategies with uncertainty in mind, so short-term events like the midterms don't have to dictate long-term decisions. We monitor these events closely, but we don't let them drive our decisions. Your goals, needs, and priorities set the direction.
If you have questions about the midterms or concerns about the markets, we'd be glad to talk.
Sources
"How midterm elections affect the stock market," U.S. Bank, https://www.usbank.com/investing/financial-perspectives/market-news/stock-market-performance-after-midterm-elections.html
"AI is carrying the S&P 500 rally: Chart of the Day," Yahoo Finance, June 2, 2026, https://finance.yahoo.com/markets/article/ai-is-carrying-the-sp-500-rally-chart-of-the-day-100000546.html
"You might be shocked by how many stocks are in a bear market right now," Morningstar/MarketWatch, https://www.morningstar.com/news/marketwatch/2026092973/you-might-be-shocked-by-how-many-stocks-are-in-a-bear-market-right-now
"S&P 500 correction in six charts," Reuters, https://www.reuters.com/markets/wealth/sp-500-correction-six-charts-2025-03-13/
"This famed stock-market bubble indicator is broken," Business Insider, https://www.businessinsider.com/stock-market-bubble-indicator-is-broken-shiller-cape-ratio-valuations-2026-8
"CEOs Say Political Uncertainty Poses Greatest Risk to Business Growth," Investopedia, https://www.investopedia.com/political-instability-tops-ceos-future-fears-survey-finds-8348594
"Survey: CEOs Start 2026 on Edge, Citing Uncertainty as Top Threat," The Conference Board, https://www.conference-board.org/topics/c-suite-outlook/press/c-suite-outlook-2026
Disclosure: Hilltop Wealth Advisors is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance. Hilltop believes that the content provided by third parties and/or linked content is reasonably reliable and does not contain untrue statements of material fact, or misleading information. This content may be dated.