U.S. Bank Asset Management Group Research analyzed Bloomberg market data from the past 125 years, reviewing 31 midterm elections to assess how these political events affect the S&P 500. Their research compared S&P 500 performance before and after midterms, while noting that historical trends do not guarantee future results.
The study found that in the year leading up to midterm elections, the S&P 500 has typically shown weaker returns than its long-term average. Specifically, average pre-midterm returns were calculated at 2.9%, compared to a historical average of 8.9%. This difference may contribute to investor perceptions of market sluggishness during election periods.
Despite this pattern, U.S. Bank Asset Management Group cautioned against using midterm election cycles as a basis for market timing. The group stated, “Markets can price-in uncertainty well before ballots get counted, and policy expectations often shift repeatedly during campaign season.” They added that increased information noise ahead of midterms can amplify daily market swings even if broader trends remain stable.
Following midterm elections, the research indicated that the S&P 500 historically performed better in the subsequent year, with an average return of 12.4%. According to their analysis, “markets have often looked past election uncertainty once the results settle and investors can refocus on growth, inflation, interest rates and earnings.”
However, not every post-midterm period yields positive results. The research attributed negative outcomes in 11 out of the 31 studied midterms to external factors such as inflation spikes, interest rate hikes, economic downturns like the Great Depression, and wars—events deemed significant enough to overshadow any potential “election effect.” This finding supports their conclusion that economic fundamentals are more influential than political outcomes when it comes to market performance.
The report emphasized that while midterms may influence fiscal policy and investor sentiment, key drivers such as employment levels, consumer spending power, inflation rates, and interest rates ultimately determine market direction more than which party is in control.
Investors were advised to maintain diversified portfolios aligned with their risk tolerance and time horizon rather than making major changes based on election headlines. “If your plan already matches your goals and risk tolerance,” they said, “the data argues for discipline, not dramatic changes around election headlines.”
Finally, U.S. Bank Asset Management Group recommended consulting wealth management professionals for personalized advice and staying informed about current market developments affecting investors.
“This information represents the opinion of Wealth Management of U.S. Bank and U.S. Bancorp Investments,” according to their statement. “The views are subject to change at any time based on market or other conditions and are current as of the date indicated on the materials.” They clarified that this analysis is not intended as a forecast or specific investment recommendation.
