Worried about the midterms? Here's how smart investors play them every time

• Since 1914, the president's party has lost House seats in 89% of midterms (averaging 30 seats) and Senate seats in 71% of midterms (averaging 4 seats), increasing legislative gridlock
• The S&P 500 has posted gains in 84% of midterm Q4s and 92% of nine-month stretches following, averaging 19.8% combined returns, with the pattern working regardless of political party or prior year performance
• The effect occurs because investors fear political extremes but are positively surprised by subsequent legislative inaction, with the pattern also benefiting foreign stocks due to global market correlations

Summary

Financial analyst Ken Fisher highlights a recurring market phenomenon: midterm elections historically trigger strong bull runs due to increased congressional gridlock. The pattern, beginning in October of midterm years, has proven remarkably consistent since accurate data became available.

Key Historical Performance:

• Since 1925, the S&P 500 gained in 84% of midterm year Q4s and 92% of nine-month periods following those quarters
• Average gain during these periods: 19.8%
• In the 10 nine-month episodes with foreign data available, international markets have never lost money during this cycle

Political Dynamics:

• Since 1914, the president's party lost House seats in 89% of midterms (averaging 30 seats lost)
• Senate losses occurred in 71% of midterms (averaging 4 seats lost)
• First two years of presidential terms see positive markets only 60% of the time
• Midterm year Q1-Q3 performance is weaker: 46%, 58%, and 60% positive respectively

Current Context:

Republicans hold slim majorities in both chambers, with approximately 25 House races and 7 Senate seats considered tossups. Fisher argues the gridlock effect occurs regardless of which party controls Congress or whether chambers flip.

Market Implications:

The pattern worked following the 2022 midterms, with the S&P 500 jumping 26% from Q4 2022 through Q2 2023. Fisher advises investors to ignore election rhetoric and focus on the historical tendency for legislative gridlock to reduce political risk, creating favorable conditions for both U.S. and international equities through mid-2027.