Elections matter, but other factors matter more

• Elections matter, but history shows markets are driven more by fundamentals than political outcomes.
• Staying invested regardless of political party in power has been the better long-term investing strategy; stocks have performed well across a wide range of partisan control scenarios.
• Despite different policies, the S&P 500 has gained 12% to 18% annualized under the three most recent presidents.
• Moreover, tech has been a consistent winner under the past three presidents, while healthcare and industrials remained resilient, for example, despite different agendas.
• Earnings growth remains this bull market's north star. Sustained earnings growth, AI monetization, interest rates, and valuations will be key to extending the bull market.

The midterm elections are coming into focus, a period when investor emotions typically run high. This election carries important implications for issues such as artificial intelligence (AI) regulation, data-center development, defense spending, healthcare, and fiscal policy. It is therefore understandable that questions about the potential market impact are increasing.

Elections matter, but they are only one of many factors that influence financial markets, and they should not be viewed in isolation.

Political uncertainty often contributes to near-term market volatility, particularly as investors assess potential changes in congressional control and the direction of policy. However, an objective review of the historical evidence suggests that Washington’s perceived influence on market returns is often overstated.

The business cycle matters. Monetary policy matters. Earnings, valuations, global policy, geopolitics, and market trends matter as well. In most periods, these forces have had a greater influence on investment outcomes than the party controlling the White House or Congress.

Thus far in 2026, the S&P 500 has loosely followed the historical midterm-year pattern, trading largely within a range since June.

Historically, midterm-election years have tended to experience a choppier period through the summer before markets begin to move beyond some of the election uncertainty. That historical pattern has often been followed by an improvement into year-end. Still, no two election cycles are identical.

That said, it has been the norm rather than the exception for the president’s party to lose congressional seats during the midterm elections. Yet, even when control of Washington changes, the market implications are rarely as straightforward as the political narrative might suggest.

One of the clearest lessons from history is the cost of allowing political preferences to dictate long-term investment exposure.

• Since 1946, $1,000 continuously invested in the S&P 500 would have grown to more than $6 million through August 2026.
• By comparison, investing only during Democratic presidencies would have produced approximately $163k and investing only during Republican presidencies would have produced approximately $38k.

The precise ending values are less important than the broader lesson: Investing based on who is in control of Washington has not been advantageous relative to staying invested.

That conclusion is reinforced by market performance under different configurations of political control.

• Whether power was unified within one party or divided across the White House and Congress, markets have historically generated positive returns over time.
• Average S&P 500 returns have been positive across all six scenarios shown in our analysis, ranging from approximately 7% to 17%.
• The number of observations varies meaningfully across the scenarios, which limits the conclusions that should be drawn from the differences between them.
• Still, the evidence provides little support for the idea that markets require one particular political alignment to advance.

History also shows that markets have presented opportunities and risks under both political parties.

• Despite meaningful differences in policy, the S&P 500 has generated annualized returns in a range of 12% to 18% under the three most recent presidents – all above the long-term market average.

Sector performance provides an even clearer example of the danger of relying too heavily on political narratives.

• Technology has consistently ranked among the strongest-performing sectors across presidential administrations since 2009. That consistency likely reflects the sector’s durable growth and innovation, which have transcended shifts in political leadership.
• Healthcare and industrials’ performance has also remained resilient across administrations despite sharply different party policies, with annualized returns ranging from 10% to 16% under recent presidents.
• In contrast, financials and energy have not demonstrated a consistent performance pattern across administrations.

The lesson is not that policy does not matter. Policy can support or constrain economic activity, affect business incentives, and create winners and losers across industries.

Businesses are dynamic. Once the rules become clearer, companies adjust their capital allocation, operating strategies, and investment plans.

The third year of the presidential cycle has historically been the strongest and most consistently positive of the four-year cycle.

Our analysis shows a positive S&P 500 total return in every third year studied, with an average return of approximately 21% since 1949. 

Several explanations are commonly offered for this pattern. Tougher policy decisions are often made earlier in an administration, when a president may have more political capital. By the third year, policymakers may have a greater incentive to support economic activity ahead of the next presidential election.

But the historical pattern requires important context.

The economy has not entered a recession during a third year of the presidential cycle since 1929. That favorable economic backdrop may help explain why third-year equity returns have been so consistently positive. If the recession pattern were to break, the strong third-year market pattern could break as well. This is not our base case, but something we are certainly monitoring. 

As we look at the current market and economic backdrop, earnings growth remains this bull market’s north star. The sustainability of that growth, the ability of AI and tech companies to monetize all the capital spending, along with the direction of interest rates and valuations, will be central to determining whether the bull market can extend its advance.

We strongly caution against mixing portfolios and politics. We are not suggesting the outcome of the midterms is irrelevant. We are, however, suggesting the election is just one of the many factors that influence market returns. Importantly, while policy can certainly hinder or help the economy, businesses are dynamic and will adjust once the rules become clearer. Historically, investors have faced both opportunities and risks under each party.

As always, we will continue to follow the weight of the evidence, keep an open mind, and update our views as conditions evolve.