Will the Midterms Rally or Crash the Stock Market?
Nobody can say, but history says the election itself matters less than what lands in the same week. Midterm years have averaged about 7.5% for US stocks against 12.4% in other years, yet the six months after the vote have averaged about 14.1%.
- This year the risks stack up around the vote: the Fed meets October 27 to 28 with a December hike priced near 80%, Alphabet, Microsoft and Amazon report, and the 10-year Treasury yield is near 5%.
- History favours a bumpy run into November and a better stretch after, but the average hides big misses such as 2018 (-4.4%) and 2022 (-18.1%).
This is educational analysis, not investment advice.
What does history say about stocks in midterm years?
| Measure | Figure | Source |
|---|---|---|
| Average return in midterm years | 7.5%, against 12.4% in other years | Morningstar, S&P 500 since 1970, as of January 31, 2026 |
| 2018 return | -4.4% | Bloomberg, total return to September 30, 2026 |
| 2022 return | -18.1% | Bloomberg, total return to September 30, 2026 |
| 2026 so far | Up 13.1% through August, the sixth-best start to a midterm year since 1926 | Morningstar, as of August 31, 2026 |
| Big-move days in 2026 | 4 days of 2% or larger S&P 500 moves through August, against 46 in 2022 and 20 in 2018 | Morningstar |
| Midterm years with fewer than 10 such days | Averaged a 19.4% calendar-year return | Morningstar |
Average annual return for US stocks in midterm years against all other years (Morningstar, via BlackRock, October 1, 2026).
The pattern is a weaker midterm year with a recovery after the vote, and 2026 has so far run against it: the S&P 500 hit a record close of 7,818.93 on October 6 and was up about 12% for the year by October 23. A strong start does not protect the rest of the year, though, and 2018 and 2022 were the weakest years for the S&P 500 since 2008.
What happens to stocks before and after the vote?
The average six-month stock return after a midterm election, against 5.7% in the same window of other years (Bloomberg via BlackRock). An average, not a promise.
| Window | What the data says | Source |
|---|---|---|
| The month before the vote | The market has rallied on average from about 22 trading days (one month) before a midterm, as polls clarify the outcome | Bloomberg via BlackRock, since 1970 |
| The six months after | An average return of 14.1%, against 5.7% in the same window of non-midterm years | Bloomberg via BlackRock, as of August 13, 2026 |
| After a party loses full control | Six-month return of 10.4% when the president's party lost its trifecta, against 16.1% when control was gained or Congress stayed divided | Bloomberg via BlackRock, as of March 30, 2026 |
Average six-month stock return after election day, midterms against other years (Bloomberg via BlackRock).
BlackRock reads the weaker figure after a party loses its full control as the market re-pricing how much legislation the government can pass. The sample is small, and the source does not separate a gain of control from a divided Congress in the 16.1% figure, so treat it as a tendency, not a rule. Reuters reports growing bets that Democrats will take control of Congress from Republicans, without giving odds.
What is rattling the market this week?
| Date | Event | Why it matters |
|---|---|---|
| Tuesday and Wednesday, October 27 to 28 | Fed meeting, decision on Wednesday | The Fed raised rates in September for the first time since 2023; futures show only a 5% to 10% chance of another hike now, but about 80% for December |
| Wednesday, October 28 | Alphabet and Microsoft report | Tests whether about $800 billion of expected AI spending this year is paying off |
| Thursday, October 29 | Amazon reports | About a third of S&P 500 companies report this week |
| Tuesday, November 3 | Midterm elections | Treated as an unofficial deadline for US-Iran peace talks, according to TheStreet |
The tensions are real and mostly not about the election. Reuters points to spiking Treasury yields, rising energy costs from the Middle East conflict, and doubt over AI spending after disappointing results from Meta and Lam Research, with the Nasdaq posting its biggest one-day fall since June on October 22. Capital.com's Kyle Rodda, quoted by TheStreet, says fears of renewed US strikes on Iran after the midterms are rising, with US oil near $102 a barrel.
Against that, third-quarter earnings are on pace to be up more than 32% from a year ago for the S&P 500 (LSEG IBES via Reuters), which is why the index is still within about 2% of its record.
Is the market priced for a shock?
The valuation and rate backdrop is the part this site tracks directly, from the weekly data of October 23 to 25 on the Crash Indicator:
| Measure | Latest | What it tells you |
|---|---|---|
| Shiller CAPE | 40.4 | Only 23 of 1,869 months since 1871 were higher; the peak is 44.2 in December 1999 |
| Buffett indicator | 214.5% | Tracked stock market value against GDP |
| Forward P/E, 494 tracked stocks | 23.8 | Priced for solid earnings |
| Equity risk premium | -1.1 points | The S&P earnings yield of 3.85% is below the 10-year Treasury yield of 4.96% |
| Margin debt | $1.48 trillion, up 31% on a year earlier | Within 1.5% of its June record of $1.50 trillion |
| Share of stocks above their 200-day average | 56% | Breadth is weaker than the index near its record suggests |
| VIX | 19.0 | Calm to mildly cautious |
| High-yield credit spread | 3.4 points | Credit markets show no stress |
| Unemployment / jobless claims | 4.2% / 194,000 | No sign of labour-market stress |
| CPI inflation | 4.0% a year | Why the Fed is raising rather than cutting |
The pattern is expensive stocks, a 10-year yield near 5% (it peaked at 5.28% on October 7) and inflation at 4%, with credit and jobs still healthy. That is a market with little room for a disappointment, not one already breaking. The Shiller CAPE ratio and the Buffett indicator explain the two valuation gauges, and the Crash Indicator method explains how the full set is read.
What could happen next?
| Scenario | What would drive it | What to watch |
|---|---|---|
| Relief rally | The Fed holds, big-tech earnings reassure on AI, yields ease, and the election result removes uncertainty | A falling 10-year yield and a VIX below 17 |
| Choppy sideways | Mixed earnings and a Fed that signals a December hike, with the election a non-event | The index staying within a few percent of its 7,818.93 record |
| Sell-off | Fed or yields surprise higher, AI spending doubts spread, or Iran escalates and oil jumps | The 10-year above 5.3%, oil above $110, the VIX above 25 |
These are scenarios, not probabilities. The honest answer to the headline is that the vote is a single date inside a week of bigger catalysts, so a rally or crash around it will mostly be the Fed, the AI earnings and Iran showing up on the same days.
What should you do about it?
- Do not trade the vote. The average post-election gain only helps those who are invested through it, and nobody times the date reliably.
- Check your risk, not your forecast. Falls in midterm years can be large (2018 ended down 4.4% and 2022 down 18.1%), so size positions so a drop of that kind would not force you to sell.
- Hold cash for needs, not for predictions. Money needed within a few years does not belong in stocks whatever the election result is.
- Watch the rate backdrop. At a 4.96% 10-year yield, Treasuries pay more than the stock market's 3.85% earnings yield, which is why expensive stocks are sensitive to yield moves.
Read is the stock market in a bubble? and does an inverted yield curve predict a recession? for the longer-run signals.
Sources
- BlackRock: Midterm elections and market performance (October 1, 2026): midterm-year returns, pre- and post-election windows, 2026 start
- Reuters via The Globe and Mail: Wall Street's week ahead (October 23, 2026): Fed hike odds, AI spending, yields, earnings growth, midterm bets
- TheStreet via Yahoo Finance: Stock market today (October 26, 2026): Iran, oil, Fed meeting and earnings calendar
- Crash Indicator on this site: CAPE, Buffett indicator, yields, credit, margin debt, breadth, October 23 to 25, 2026
The Monday index snapshot was an intraday reading, not a close, and the Fed hike odds differ between sources (5% and 10% for this week) because they were measured at different times. None of the sources gave midterm polls or betting odds, so the likely outcome of the election is not covered here. Historical averages come from the sources above, use different start years and are not forecasts. This is educational content, not investment advice.
Midterms and the stock market FAQ
Do stocks go up or down around midterm elections?
Historically they have been weaker during the midterm year, about 7.5% against 12.4% in other years, then stronger afterwards: the six months after the vote have averaged 14.1%.
Will the 2026 midterms crash the stock market?
Nobody can say. The vote is one date in a week that also has a Fed meeting, big-tech earnings and Iran tensions, and the market is expensive with a 10-year yield near 5%, so a sell-off is possible but not predicted by the election itself.
Does a divided Congress help or hurt stocks?
The data is thin: six-month returns after the president's party lost full control averaged 10.4%, against 16.1% when control was gained or Congress stayed divided, according to Bloomberg data cited by BlackRock.
What is the Fed expected to do this week?
Hold. Futures show only a 5% to 10% chance of a hike at the October 27 to 28 meeting but about 80% for December, after a hike in September.
Should I sell before the midterms?
This site does not give investment advice. History suggests selling and re-entering at the right time is hard, and it is more useful to check that your positions could survive a fall of the size seen in 2022.