Historical data shows the S&P 500 rises an average of 13.7% after U.S. midterm elections.

Author: Schatong TechFlow

Shenchao Overview: Behind the noisy political campaigns, capital markets continue to move along the deep-seated quantitative historical trajectory. According to a recent CNBC analysis of the S&P 500’s performance from 1980 to 2024, in all 11 U.S. midterm elections over the past 40 years, U.S. stocks rose in the year following each election, with an average gain of 13.7%.

More compelling is the market premium driven by checks and balances. Historically, divided government—where the White House and Congress are controlled by different parties—has delivered significantly higher returns than a single-party government, achieving an average one-year return of up to 15%, and is viewed by Wall Street institutions as the ideal scenario with the lowest policy uncertainty.

Despite an unprecedented historical win rate, major investment banks remain rationally cautious in the face of today’s complex macroeconomic shifts. Amid diverging trends in AI tech stocks, rising global bond yields, and fluctuating Fed rate cut expectations, policy maneuvering has taken a back seat—true outcomes still hinge on corporate earnings and liquidity realities.

According to CNBC, a comprehensive statistical analysis of U.S. stock market performance from 1980 to 2024 shows that after each of the 11 midterm elections between 1982 and 2022, the S&P 500 posted gains in the following year, achieving a rare historical win rate of 100%.

From a quantitative return perspective, the U.S. stock market has historically averaged a 13.7% gain one year after the midterm elections, nearly matching the 13.8% average return observed one year after presidential elections. Once election outcomes are settled, the prolonged political uncertainty hanging over capital markets is effectively resolved, significantly boosting institutional investors' risk appetite.

The regularity of political cycles drives the reset of capital flows. Ahead of elections, policy uncertainty often prompts risk-off capital to stand aside or suppress market valuations; once voting concludes, regardless of which party controls Congress, the clarity of policy direction becomes the key catalyst for valuation recovery and the restructuring of risk asset valuations.

In the complex landscape of political control, data reveals a unique market preference for checks and balances. During the 10 midterm elections and 5 presidential elections featuring a “divided government” (where the White House is controlled by one party and at least one chamber of Congress is controlled by the opposing party), the S&P 500 averaged a 15% gain over one year.

More strikingly, in 14 out of the 15 historical samples of divided government, positive returns were ultimately recorded, indicating extremely high overall certainty; in contrast, when elections result in a unified government with a single party controlling both chambers and the White House, the average S&P 500 gain in the year following the election narrows to 11.5%, with significantly reduced outperformance.

Using the three instances of Democratic control of both congressional chambers and Republican control of the White House—in 1986, 1990, and 2006—the S&P 500 dipped slightly by 0.5% on the day of the results, but averaged a 3.4% rebound one month later and a 10.9% gain one year later, demonstrating that legislative gridlock can effectively curb aggressive tax increases and sudden regulatory crackdowns.

Although historical quantitative win rates are extremely impressive, viewing the political calendar as an investment talisman clearly reflects a significant cognitive blind spot. The macro strategy team at Société Générale explicitly warns in its latest research report that the Federal Reserve’s monetary policy cycle, liquidity conditions, and corporate earnings cycles ultimately determine the central level of asset prices—factors that far outweigh the impact of election outcomes themselves.

Historical lessons are abundant. Following the 2018 midterm elections, the Federal Reserve unusually raised interest rates four times that year, causing the S&P 500 to decline 6.2% for the full year, though it rebounded 11.7% a year later due to hedging; during the 2000 dot-com bubble burst, U.S. stocks suffered a steep 22.1% decline in the year following the election.

In contrast, the S&P 500 surged an astonishing 38.3% in the year following the 2020 election, primarily driven by the Fed’s launch of quantitative easing and massive stimulus programs—not merely the change in administration. Any blind long position that ignores macroeconomic liquidity tightening and systemic recession risks is极易陷入历史刻舟求剑的流动性陷阱。

At this macroeconomic crossroads, capital markets are focused on technological innovation and real-world growth. Ryan Detrick, Chief Strategist at Carson Group, notes that as long as the AI wave continues and the macroeconomy maintains solid expansion, the foundation of the U.S. stock market bull market remains healthy, and short-term pullbacks cannot obscure the broader upward trend.

However, Jim Reid, Head of Macro Research at Deutsche Bank, holds a more cautious stance. He noted that seasonal patterns cannot determine actual market trends; core risks such as geopolitical tensions in the Middle East, political instability in France, and rising global bond yields will not disappear with the end of elections, and heightened caution is needed to guard against valuation pressures.

Looking ahead, the settling of political uncertainty has merely created a tactical window for emotional recovery; the true foundation for whether this long-term bull market can weather the storm lies in the monetization capacity of tech giants’ computing capital expenditures and the sustainability of sovereign debt. Only by cutting through the noise of politics can investors remain unshakable in a market growing increasingly divided.