The S&P 500 has demonstrated an uncommon but noteworthy sequence of growth, recording three straight years of double-digit percentage increases: 24% in 2023, 23% in 2024, and 16% in 2025. Since 1926, such a sustained run has occurred only seven times prior, highlighting the rarity of this performance streak. With the 2026 U.S. midterm elections approaching in November, it is pertinent to explore how historical trends around these electoral cycles might inform expectations for the S&P 500’s future trajectory.
Historical analysis reveals a distinct market behavior pattern in relation to midterm elections. Typically, the year preceding these elections experiences a period of increased volatility and notable downturns in the S&P 500, commonly referred to as drawdowns. Despite these antecedent declines, the subsequent 12 months following midterm elections have generally seen the index resume upward momentum, yielding positive returns for investors.
Examining data across the last ten midterm elections illustrates this cycle. The largest market declines within the year before these midterms have ranged significantly, with examples including a 33.8% drop prior to the 2002 midterm and a 7.4% decline before 2014. Despite this variability in pre-election pullbacks, the S&P 500’s returns in the 12 months following midterms have mostly been favorable, with gains as high as 25.9% after the 1994 midterms and 22% following the 1998 cycle. Even in years with substantial pre-midterm drawdowns, such as in 1990 and 2002, the index still managed strong post-election returns of 24.7% and 14.9%, respectively.
Broader historical data extending back to the 1926 midterms reinforce this tendency. On average, the S&P 500 achieved approximately a 13.6% increase over the 12 months subsequent to midterm elections. Notably, there were only two exceptions to this trend when the index posted negative returns: following the 1930 and 1938 midterms. These observations suggest a pattern where market participants commonly experience heightened uncertainty and volatility leading up to midterms, likely driven by concerns over possible shifts in policies or regulatory frameworks that could impact corporate earnings and economic conditions.
One explanation for the observed post-midterm market strength is the reduction of uncertainty regarding political leadership and policy direction after the elections conclude. Prior to midterms, the prospect of changes in government control can stoke investor apprehension due to potential new regulations, tax modifications, or altered economic priorities. Once the election results are finalized, the market gains a clearer view of the political landscape, allowing corporate America and investors to adjust expectations accordingly. This clarity may facilitate a more stable environment conducive to stock market appreciation.
While these historical patterns provide valuable context, it is crucial to interpret them with measured caution. Past performance does not guarantee future outcomes, and the inherent volatility in financial markets means that no strategy based solely on calendar events can assure gains. Consequently, investors should resist impulses to entirely avoid investment opportunities before midterms or to concentrate disproportionate capital immediately following the elections under assumptions of guaranteed returns.
Investment discipline remains paramount in navigating market variability. One widely advised approach is dollar-cost averaging, which involves allocating a fixed amount of capital at regular intervals, irrespective of market price fluctuations. This method balances investments over time, mitigating the risks of market timing by ensuring that purchases occur both during high and low price periods. Consistent application of this strategy aligns with historical evidence of the S&P 500’s long-term growth trend despite periodic setbacks.
Ultimately, while the S&P 500’s history around midterm elections indicates a tendency for temporary pre-election declines followed by post-election rebounds, investors must remain attentive to the unique circumstances present in each market cycle. Employing systematic investment practices grounded in historical insights, while acknowledging the limitations of such data, can support more informed decision-making amid the complexities of market behavior.
February 4, 2026
Finance
Analyzing Historical Trends: What S&P 500 Performance Suggests About the Market in 2026
Examining the S&P 500’s Pattern Around U.S. Midterm Elections and Implications for Investors
Derek Hwang
Materials & Mining Analyst
Summary
The S&P 500 experienced three consecutive years of significant gains from 2023 through 2025, a rare occurrence since 1926. Historical data indicates that while the index often sees declines in the year leading up to U.S. midterm elections, it frequently rebounds with positive returns in the following 12 months. This pattern suggests potential market gains post-2026 midterms, but investors should approach with caution and maintain disciplined investment strategies.
Key Points
The S&P 500 achieved three consecutive years of double-digit gains from 2023 to 2025, a rare occurrence since 1926.
Historically, the index tends to experience notable declines in the year before U.S. midterm elections but generally rebounds with positive returns in the 12 months following those elections.
Post-midterm market strength is often attributed to reduced political uncertainty, providing clearer economic expectations for corporate America.
Risks
- Historical patterns do not guarantee future market performance, and exceptions to the trend have occurred, such as after the 1930 and 1938 midterms.
- Market volatility around midterm election cycles can be significant, potentially impacting investment decisions and returns.
- Relying solely on election timing for investment strategies risks neglecting broader economic and corporate factors influencing market outcomes.
Disclosure
This article is for informational purposes only and does not constitute investment advice. Investors should consider their individual financial situations and consult with a professional before making investment decisions.