With the 2026 midterm elections approaching, investors are wondering what the results could mean for their portfolios. History offers some surprising perspective — and a reminder of why long-term investment strategy matters more than political headlines.
Election Week: Uncertainty Is in the Air
A holiday weekend, the first business day of the month, and midterm elections tomorrow. If there were ever a week to make time for a little meditation, this might be it!
There's certainly no shortage of headlines competing for our attention. Between economic uncertainty, shifting interest rates, market volatility, and political developments, investors have plenty of reasons to wonder what might happen next.
And with another election upon us, one question inevitably resurfaces:
Will the stock market rise or fall depending on who wins?
The answer is more interesting than you might expect. A century of historical market data suggests that elections can influence short-term investor sentiment, but the relationship between political outcomes and long-term investment performance isn't nearly as straightforward as the headlines might suggest.
Let's explore what history tells us.
Do Stocks Typically Rise After Elections?
According to research published by Morningstar in October 2026, the stock market has historically performed better during November in election years than during November in non-election years.
Looking at U.S. stock returns dating back to 1926, researchers found:
2.4% average November return during election years
0.9% average November return during non-election years
That's a meaningful difference, particularly when considering that November has historically been a relatively strong month for stocks regardless of the election calendar.
Why might elections produce this effect?
One possible explanation is surprisingly simple: Markets dislike uncertainty.
Leading up to an election, investors are left speculating about potential policy changes, tax legislation, government spending, and regulatory developments. Once the results are known, some of that uncertainty disappears.
Investors can then redirect their attention toward economic fundamentals, corporate earnings, and the outlook for future growth.
Of course, this doesn't mean stocks automatically rise following every election. Morningstar identified 1948 and 2000 as particularly challenging election months, both associated with uncertainty surrounding election outcomes.
The distinction is important: Markets may respond less favorably when uncertainty persists, regardless of which political party ultimately wins.
What About Midterm Elections Specifically?
Midterm elections introduce another interesting historical pattern.
Research from BlackRock found that annual stock market returns have historically averaged approximately 7.5% during midterm election years, compared with 12.4% during non-midterm years.
However, the picture changes considerably when examining the period following midterm elections.
According to Fidelity, since 1950, the S&P 500 has delivered average returns of:
4.9% in the 12 months leading up to midterm elections
14.5% in the 12 months following midterm elections
That's nearly three times the average return in the year following an election compared with the preceding year.
Does that mean investors should rush to buy stocks immediately after Election Day?
Not necessarily.
Historical averages aren't guarantees of future returns, and these figures don't account for every economic variable influencing the market during those periods.
Consider that 2026 has already demonstrated how difficult it can be to apply historical patterns to any particular year. As of October 29, the S&P 500 had gained approximately 12% year to date, despite the historically weaker performance associated with midterm election years.
History can help establish perspective, but it isn't a reliable market-timing strategy.
Does the Stock Market Prefer a Divided or Unified Government?
Another common belief among investors is that a divided federal government is better for stocks.
The reasoning is that when different political parties control Congress and the White House, significant policy changes can become more difficult to implement. Some investors interpret that legislative gridlock as a form of stability.
But Morningstar's historical research challenges that assumption.
Over the past century, researchers found that average monthly stock returns were:
1.2% under unified government
0.7% under divided government
Interestingly, both environments produced positive average returns.
It's also important to recognize that these figures reflect historical associations, not proof that one governing arrangement causes stronger stock market performance.
Economic growth, inflation, monetary policy, corporate profitability, and global developments all influence investment returns.
The takeaway? The stock market has historically found opportunities to grow under a variety of political circumstances.
Investors shouldn't assume that one particular election outcome will determine the future direction of their portfolios.
Political Headlines Aren't the Same as Economic Fundamentals
One of the most important distinctions investors can make is separating political developments from the underlying health of the economy.
A dramatic headline may cause a temporary market reaction without meaningfully changing the long-term outlook for corporate earnings or economic growth.
Conversely, significant economic challenges can develop regardless of which political party controls Washington.
That's why I encourage investors to pay attention to broader economic indicators rather than reacting to every headline.
At Elswick Investments, we regularly highlight Recession Risk Indicators in our weekly market updates for precisely this reason.
Indicators related to employment, consumer activity, manufacturing, and other areas of economic activity can help us evaluate the broader economic environment.
No single indicator can reliably predict a recession, but examining multiple data points together provides a more informed perspective than relying on political commentary or short-term market movements.
The goal isn't to predict every twist and turn in the economy.
It's to understand the environment we're investing in and make thoughtful decisions based on evidence rather than emotion.
Why Diversification Matters More Than Election Predictions
Imagine preparing for a long road trip.
You don't know exactly what the weather will be along the way. There may be sunshine, heavy rain, unexpected construction, or even snow.
Would you rather drive a vehicle designed for only one type of road, or one equipped to handle a variety of conditions?
That's how I think about a well-diversified investment portfolio.
Diversification is the all-wheel drive of investing.
A thoughtfully constructed portfolio doesn't depend entirely on one company, one industry, one asset class, or one political outcome.
Instead, investments are selected and balanced according to an investor's financial goals, risk tolerance, time horizon, and anticipated cash needs.
Different investments can respond differently to changing economic conditions:
Stocks may benefit from corporate earnings growth and economic expansion.
High-quality bonds may provide income and help moderate portfolio volatility, although they carry their own interest-rate and credit risks.
Cash and short-term investments can provide liquidity for anticipated expenses.
Diversification across industries, company sizes, and geographic regions can help reduce concentration risk.
None of these investments performs best in every environment. And diversification doesn't eliminate the possibility of losses.
But the purpose of thoughtful portfolio construction isn't to predict which investment will win tomorrow.
It's to build a strategy that can remain appropriate across many possible economic environments.
After all, the best time to prepare for changing road conditions is before you encounter them.
Should Investors Change Their Portfolios Before Election Day?
For most long-term investors, an upcoming election alone isn't a compelling reason to overhaul an otherwise appropriate investment strategy.
Trying to anticipate election outcomes is difficult enough. Predicting how financial markets will respond introduces an entirely separate challenge.
Even correctly anticipating an election result doesn't guarantee that an investor will correctly predict the market's reaction.
Instead, consider asking a few more productive questions:
Is my portfolio appropriately diversified for my financial goals?
Has my risk tolerance or investment time horizon changed?
Do I have sufficient liquidity for upcoming expenses?
Am I taking more concentrated investment risk than I realize?
Does my current investment strategy still align with my long-term financial plan?
These are questions worth revisiting regardless of the election calendar.
And if the market does experience volatility surrounding election results, remember that temporary price fluctuations don't necessarily indicate a deterioration in the underlying value or long-term prospects of your investments.
The Bigger Picture: Stay Invested in Your Definition of Success
Elections matter. Public policy can influence taxation, regulation, government spending, and the broader economic environment.
But a long-term financial strategy should be built to accommodate change rather than depend on a particular political outcome.
A century of market history demonstrates that stocks have experienced periods of growth, decline, and recovery under different political parties, governing arrangements, and economic conditions.
That doesn't guarantee future market performance. It does, however, offer valuable perspective when headlines become overwhelming.
At Elswick Investments, our focus remains on constructing diversified, high-quality portfolios aligned with each client's individual goals and definition of success.
Because ultimately, your financial future deserves a strategy built for more than a single election cycle.
And one final thought for Election Day: Rather than spending the day refreshing your portfolio balance or watching every market movement, don't forget to vote.
Your financial plan is designed for the long road ahead.
Further Reading & Research
Historical performance is not a guarantee of future results. Diversification and asset allocation do not ensure a profit or protect against loss. This article is provided for educational purposes and should not be interpreted as individualized investment advice.
