Published October 30, 2026
Historically, midterm elections have been overwhelmingly positive for the stock market, providing a reliable catalyst for a post-election rally. Extending back to World War II, the S&P500 has risen 100% of the time in the 12 months after midterm elections occur.
Once the votes are cast, the removal of policy uncertainty acts as a massive relief valve. The market shifts its focus back to corporate earnings and economic fundamentals. Since 1957 (the starting year of the S&P500), the S&P 500 has surged by anywhere from 15.6% to as high as 21.4% in the 12 months following a midterm election.
Does it matter which party wins and the alignment between the presidency, the House and the Senate? Yes, it does, as shown in the following table. You will note, that on average, returns have always been strongly positive a year after a midterm election.
You will note that the lowest return is for a Republican President and a Democratic Congress – this is what polls and prediction market expect for pending midterm election. This specific configuration has occurred 5 times since 1957. The immediate removal of the political uncertainty typically has a strong and immediate impact on the stock market and the 12-month returns following the midterm election still show strong performance. In the subsequent 2nd year after the midterms, economic issues tend to take the driver’s seat and returns tend to moderate back to the single digits. The lone exception was the October 1987 Long Term Capital Management crash that impacted the latter part of Reagan’s term and caused a significant dip in stocks.
Market Update
On Monday, oil prices weakened slightly and the 10Y treasury note held below 5%. The real news was all in AI, where Anthropic, makers of Claude, filed for their IPO which is expected around November 16th. Also in AI news, SpaceX (SPCX) raised $40B for AI datacenters and Elon Musk indicated that many neocloud companies are destined to fail. And finally, Meta put together an equity fund to raise $35B for further AI development. On the day, the S&P500 closed with a 0.7% gain
Tech momentum accelerated into a second day on Tuesday, pushing the NASDAQ up more than 1%, its best daily session in nearly a month. The rally was supercharged by enormous private sector capital injections into AI infrastructure. Shares of Broadcom (AVGO) climbed +4% following news that Blackstone and a several banks including Citi, Bank of America, and Morgan Stanley structured a massive $63B financing package explicitly to purchase Broadcom technology for Anthropic development. AMD jumped +5% and AI cloud provider CoreWeave bounced back +7.9% in response. GM shares rose +5.5% after announcing a strategic listing move from the NYSE to the NASDAQ to capture tech-index investment funds. Meanwhile, corporate earnings results were mixed; Coca-Cola lifted its annual guidance on strong volume, while Visa and Robinhood (HOOD) slid in after-hours trading due to rising costs. The S&P 500 gained another 0.6% to settle at 7,722.60.
Wednesday Wall Street took a breather with the S&P 500 grinding slightly higher to hold within 1.1% of its all-time record high after the Federal Reserve’s rate announcement. The S&P 500 crept up roughly 0.10% to 7,728.71. As expected, the Federal Reserve left interest rates unchanged after hiking in September. The Fed said economic activity is “expanding at a strong pace” but also noted that inflation “remains elevated.” A rate hike at the next Fed meeting seems certain. Fixed-income markets felt the heat, with 10-year Treasury yields crossing back above 5%.
While the S&P500 only fell -0.3% on Thursday, it was a wild day under the surface. Alphabet, better known as Google (GOOG) crashed -12%, its largest one day decline since going public. Caterpillar (CAT) tumbled -9%, ServiceNow (NOW) tanked nearly -27%, and Marvell (MRVL) plummeted -13% on news they were buying optical components company Lumentum (LITE). The 3rd quarter GDP reading came in hot at 3.4% and the PCE inflation figure even hotter at 3.6%. Suffice to say that while the economy is stronger, inflation might be stronger, further solidifying likely future rate hikes. The NASDAQ 100 fell -1.4% however some investors rotated into small cap stocks driving the Russell 2000 almost +1% higher while other dove into bonds, driving the 10Y yield down -1.1% to 4.99%.
Friday, sellers arrived with a vengeance over AI debt and cash flow concerns. At one point the NASDAQ 100 was down over -4% until buyers stepped in during the last hour – still the NASDAQ 100 closed -3.47%. Selling was broadbased with the S&P500 closing down -1.82% and the Russell 2000 falling -1.67%. Of note, defensive sectors held their own with consumer staples (XLP) gaining +1.41%, utilities rising 0.67% and healthcare moving +0.45%.
An unusual week for stocks saw the S&P500(SPY) close down -0.57%, a relatively benign decline given the volatility. Even stranger was the disparity between the +1.29% gain for the Russell 2000 (IWM) versus the -1.98% loss for the NASDAQ 100 (QQQ).
Warm wishes and until next week.