The 2026 midterm elections are now behind us, but uncertainty surrounding the political landscape and its potential impact on the economy and financial markets remains.
For investors, election season often brings a familiar mix of headlines, predictions, large swings in the market, and concerns about what the future may hold. Will changes in Congress affect taxes? Could new policies influence economic growth? Should investors adjust their portfolios based on which party controls the House or Senate?
Trying to predict how elections will affect the stock market is a difficult strategy for long-term investors to rely on. While political developments can influence markets, the relationship between election outcomes and investment returns is far more complicated than headlines often suggest.
We believe investors are better served by focusing on their financial goals, maintaining a well-structured portfolio, and avoiding unnecessary investment decisions driven by short-term political uncertainty.
What Do Midterm Elections Mean for the Stock Market?
The outcome of a midterm election can influence economic policy, government spending, regulation, and taxation. These developments can affect individual companies, industries, and the broader economy.
However, the stock market does not respond to political developments in isolation.
Financial Markets are forward-looking. By the time an election result is known, investors have already spent months evaluating the potential outcomes and adjusting their expectations.
This makes it difficult to consistently profit from predicting election results or anticipating how markets will respond.
Even when investors correctly predict which party will gain control of Congress, they may still be wrong about the direction of the stock market.
Why Election Predictions Can Be Misleading
Consider the 2016 presidential election.
Before Election Day, some market commentators anticipated that a Trump victory would cause stocks to decline in a major way. Instead, the S&P 500 rose approximately 1.1% on November 9, 2016, and skyrocketed from there.
The point is not that elections are always followed by positive market returns. Rather, the example illustrates how difficult it can be to anticipate the market's reaction to an event that has already been widely discussed and anticipated.
This graphic below illustrates that election month returns were well within the typical range of returns, regardless of which party won the election. Results similarly appeared random when looking at all Congressional elections (midterm and presidential) and for annual returns (both the year of the election and the year after). Exhibit 1 shows the frequency of monthly returns (expressed in 1% increments) for the S&P 500 Index from January 1926–December 2025.
Do Stocks Perform Differently Under Different Political Parties?
Both political parties think their victory means a roaring market and their defeat will certainly lead to a crash. The data very much suggests otherwise.
The stock market has experienced periods of substantial growth and significant declines under both Democratic and Republican leadership. It has also continued to experience market cycles during periods of divided government.
This makes it difficult to establish a consistent relationship between congressional control and investment performance.
For long-term investors, the more important question is not which party is in power, but whether their investment portfolio is appropriately structured to help them pursue their financial goals through different economic and political environments.
The graph below shows the hypothetical growth of an investor who put $1 in the S&p 500 in 1926. As the exhibit shows, regardless of the party in control, markets have continued to provide incredible returns for investors who hold a long term investment strategy.
Should I Change My Retirement Plan Based on Election Results
To keep an already lengthy article shorter, “No”. The outcome of a single midterm election should not sway our retirement plan one way or another.
Election-related uncertainty can make short-term market movements feel especially significant. However, long-term investors should remember that a few days, weeks, or months of market performance represent only a small part of their overall investment experience.
A well-diversified portfolio is designed to participate in market growth while managing risk across different conditions. It is not designed to depend on the outcome of a single election.
Before making any significant investment decisions, we will consider the following for our clients:
1. Revisit your financial goals. Your investment strategy should reflect your time horizon, spending needs, and financial priorities, not the latest political developments. For those coming up on retirement or in retirement, we should have a hefty bucket of short-term bonds, cash, or fixed income set aside for these volatile times in the market.
2. Review your portfolio's risk level. If market volatility is causing significant concern, and stress in your life, it may be worth evaluating whether your current asset allocation is appropriate for your circumstances. We want our clients to focus on enjoying their life and retirement, not worrying about day-to-day changes in the market!
3. Avoid making decisions based on short-term predictions. Selling investments in anticipation of a market decline or buying based on an expected political outcome can introduce unnecessary risk into a long-term plan. Especially those taking distributions from their portfolio, a poor timed investment sell can have a major negative impact on their portfolio.
4. Maintain a disciplined investment strategy and financial plan. A thoughtful financial plan can help you remain focused on your long-term objectives, even when markets are unsettled. We help clients avoid making poor mistakes in their portfolio when market experience extreme volatility. We help manage the distributions from your portfolio and make sure that even with a drop in portfolio value, your expected distributions from the portfolio are still in an acceptable range to live on!
Looking for a fee-only financial advisor in Cary, NC? Contact Testament Wealth Management to learn how a personalized financial plan can help you navigate market uncertainty and stay focused on what matters most to you.