The midterm elections are Tuesday, November 3, and the Federal Reserve made its last rate decision before the vote on Wednesday, holding its benchmark rate at 3.75% to 4%. If you’re wondering whether to move money around before the results come in, more than a century of market history says to leave your portfolio alone.
Here’s what the record shows about stocks, interest rates and inflation around midterms, whether the midterm slump is real or a statistical accident, and why the part that matters is still ahead of us.
What History Says About Stocks in Midterm Years
Midterm years have been the weakest stretch of the four-year presidential cycle. Across 31 midterm elections since 1900, U.S. stocks returned an average of 2.9% in the 12 months before the midterm vote, compared with 8.9% across all years, according to research from U.S. Bank Asset Management Group. In the 12 months after a midterm, average returns jump to 12.4%.
The two most recent midterm years were rough. The S&P 500 lost 18.1% in 2022 and 4.4% in 2018, the index’s two worst years since 2008, per BlackRock. The gap looks dramatic, which raises two questions the averages alone can’t answer.
Is the Midterm Effect Real or Just Noise?
Mostly noise, with a kernel of something real. When U.S. Bank’s researchers ran statistical tests on all 31 cycles, the gap between midterm years and other years wasn’t large or consistent enough to count as a reliable effect. Returns in midterm years have ranged from losses of more than 30% to gains approaching 50%, and a handful of terrible years drag the average down.
Those terrible years also had better explanations than the election alone. The 2018 and 2022 selloffs came from Federal Reserve rate hikes, and 2002 fell with the rest of the dot-com hangover. Set those aside and what’s left is a modest, plausible effect. Investors dislike not knowing what Congress will look like, and some of them wait until they do. That shows up as softer returns in the run-up and a rebound once the result is in, whichever party wins.
Where We Are in the Cycle Right Now
If the effect is real, the weak half of it is nearly over. The 12 months of underperformance in the data run up to election day, and the market has historically turned higher about a month before the vote as polls firm up. The strong half, the 12 months after, hasn’t started yet. For anyone tempted to sell ahead of the results, that is exactly backward.
This year hasn’t followed the script anyway. Fidelity notes stocks have held up in 2026 despite higher oil prices, tariffs and the prospect of more rate increases, so there’s less of a hole to climb out of than in 2018 or 2022. That cuts both ways. Less pre-election weakness may mean a smaller post-election bounce, since part of the historical rebound is simply recovering ground lost in the run-up.
Interest Rates and Inflation Are Not on the Ballot
Congress does not set interest rates, and neither does the president. The Fed does, and it just held at 3.75% to 4% after raising rates in September for the first time since 2023. Inflation has been running above target, with core PCE at 3.0% in August, and futures markets put the odds of another quarter-point hike in December near 85%, according to the Associated Press.
The next Congress can push on inflation through spending and tax decisions, and those feed into what the Fed does, but that link is indirect and slow. Morgan Stanley’s view is that the election alone is unlikely to change the longer-term outlook for rates or the deficit in any substantial way. If you’re hoping the vote will bring mortgage rates down, the Fed’s December meeting matters far more than next Tuesday’s results.
Does It Matter Which Party Wins?
For your investments, less than the headlines suggest. Forecasters currently favor Democrats to retake the House with the Senate close to a toss-up, per Morgan Stanley, which would mean divided government. That usually means fewer major laws get passed, and markets have performed reasonably well under that arrangement in the past. Analysts at Russell Investments note that the less-expected outcome, Republicans keeping both chambers, could mean more spending and tax cuts that support growth but keep inflation and rates higher for longer.
Either way, the effects tend to land in specific industries through hearings, regulation and executive action rather than across the whole market. Over the next year, inflation, economic growth and corporate earnings will do far more to your portfolio than the makeup of Congress.
What To Do With Your Investments
Nothing you wouldn’t already be doing. Keep your 401(k) and IRA contributions on schedule, rebalance on your normal calendar rather than on election night, and expect some extra volatility in the weeks around the vote. Investors who sold after the brutal 2022 midterm year missed the rally that followed in 2023, and the historical record suggests the same risk applies to anyone sitting out now.
Schwab’s Washington policy analyst Michael Townsend has said much the same, telling investors to expect near-term volatility but to stay focused on long-term goals rather than trying to time the market around the outcome. The election will settle many questions about Washington. It won’t settle the ones that matter most for your money, which are still inflation, interest rates and whether companies keep growing their earnings.
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