Nov 29, 2025

I recently heard that as the U.S. midterm elections approach in 2026, historical trends over the past century indicate that financial markets often face significant volatility in the year to year-and-a-half leading up to these elections. Specifically, the S&P 500 tends to experience notable pullbacks, sometimes exceeding 10%, during this period. However, these downturns tend to be followed by strong rebounds in the months after the elections, presenting potential buying opportunities for investors.

This pattern, often referred to as the “midterm curse,” is tied to the political reality that the sitting president’s party frequently loses seats in Congress during midterms, especially in the House of Representatives. This shift is generally driven by voter fatigue and dissatisfaction with the current administration’s policies, leading to concerns about legislative gridlock and slower economic growth. These political dynamics contribute to investor uncertainty and market volatility before the elections.

That said, experts caution that market pullbacks before midterms are not always directly caused by the elections themselves. Other factors, like economic recessions, can coincide with midterms and complicate the picture. When recessions are excluded from the data, the pattern remains clear: most midterms have been preceded by sizable market declines, followed by meaningful rallies. On average, the S&P 500 has risen approximately 5.8% three months after midterms, 10.5% after six months, and nearly 15% after a year.

Regarding the current market backdrop, U.S. Treasury yields are sitting around 4%, the U.S. dollar remains strong, and oil prices have edged down slightly. Although there was a recent technical glitch affecting equity futures, the overall sentiment is cautiously optimistic. Investors seem to be looking ahead to the possibility that post-election policy clarity could help markets shift focus back to economic fundamentals.

Lastly, foreign investors continue to show strong demand for U.S. assets, especially in sectors related to artificial intelligence and fixed income. This demand supports the strength of the dollar and is likely to persist given the expectation that interest rates will remain elevated for some time. Combined with ongoing enthusiasm for technological innovation, this foreign appetite could provide additional support to U.S. markets in the coming months.

Stay Well!