LPL Financial's Chief Equity Strategist Jeff Buchbinder analyzed US midterm election impacts on stocks, with the elections now 4 months away. The analysis shows that despite volatility during midterm election years, the S&P 500 has risen after all 18 midterm elections since 1954, averaging an 18.2% gain in the following 12 months. Buchbinder stated that history demonstrates investors benefit more from focusing on market behavior than political predictions. Midterm election years historically show the weakest annual stock performance during a presidential term, with an average 4.6% gain and the highest volatility, but the 12-month period following midterm elections consistently delivers the strongest annual growth rates for investors.
S&P 500 Rose After All 18 Midterm Elections Since 1954
According to Yahoo Finance coverage on the 23rd (local time), LPL Financial data shows midterm election years have historically been the weakest for annual stock performance during four-year presidential terms. The average gain stands at just 4.6%, with the largest average declines and highest volatility occurring in these years.
However, the 12-month period following midterm elections (the year before presidential elections) has consistently shown the strongest annual growth rates, creating positive conditions for investors. Looking back to 1954, the S&P 500 rose without exception after all 18 midterm elections during this period, with an average gain of 18.2%.
Buchbinder explained that this pattern reflects typical market tendencies where uncertainty peaks ahead of elections and begins to dissipate after results become known. He added that once investors see the political landscape clearly, they shift their attention to fundamentals such as economic growth rates, corporate earnings, and monetary policy.
LPL Financial Forecasts Divided Congress Scenario
LPL Financial's base scenario anticipates a shift from the current situation where Republicans control both chambers to a divided Congress, with control split between the Senate and House.
A divided Congress would create an environment where major legislative changes decrease, but volatility surrounding core issues such as government budget bills and debt ceiling increases. If Democrats gain control of either chamber, they would block major legislation, making passage of significant bills more difficult and focusing attention on what the White House can accomplish through executive orders and regulatory agencies.
Buchbinder Advises Focus on Market Volatility Over Election Winners
Buchbinder emphasized that market outcomes matter more than political outcomes, noting that risk rewards investors willing to deploy capital when uncertainty is highest with substantial returns.
He stated that midterm election years test investors' patience, and those who remain patient can be rewarded. Buchbinder advised that rather than predicting election winners, investors may benefit more from preparing for volatility accompanying the election process and capturing opportunities that emerge as uncertainty begins to lift.
FAQ
What historical pattern does the S&P 500 show after US midterm elections?
The S&P 500 has risen after all 18 midterm elections since 1954, with an average gain of 18.2% in the 12 months following each election. This consistent pattern occurs despite midterm election years themselves showing the weakest annual stock performance during presidential terms.
What congressional control scenario does LPL Financial forecast for the upcoming midterm elections?
LPL Financial's base scenario forecasts a divided Congress, shifting from the current Republican control of both chambers to a split where control is divided between the Senate and House. This scenario would reduce major legislative changes while increasing volatility around core issues like government budgets and debt ceiling negotiations.
