““There’s nothing in the street
Looks any different to me
And the slogans are effaced, by-the-bye
And the parting on the left
Is now the parting on the right
And the beards have all grown longer overnight…
…Meet the new boss
Same as the old boss”
– (From “We Won’t Get Fooled Again,” by The Who, 1971)
By Scott Welch, CIMA®, CEPA®, Chief Investment Officer & Partner
Reviewed by Carter Mecham, CMA®, IACCP®
It is now post-Labor Day in an election year, in this case the 2026 midterm elections. President Donald Trump may not officially be on the ballot, but it is hard to see this election as anything other than a voter referendum on how he is doing. Which is typical in midterm elections.
We don’t know how the election will turn out, but history suggests that midterms rarely turn out well for the Congressional parties in power.
Since 1994 there has been only one midterm election (1998) when both houses of Congress remained in control of the same political party.
Source: National Constitution Center, “How Midterm Elections Have Changed Congress since 1946.”
We know that, even with control of the presidency and both houses of Congress since 2024, the Republicans have not been able to accomplish much of their desired legislative agenda because they have such narrow majorities.
[This ignores President Trump’s Executive Orders, which can be overturned with the stroke of a pen by a new President.]
So, if the Democrats should regain one or both houses of Congress, or even if the Republicans retain control with narrow majorities again, we can assume political gridlock until at least the next presidential election in 2028.
Which is not necessarily bad for the markets, and that is the question we want to explore – how do markets typically react to election outcomes?
Every time there is an election, the media is filled with stories about which candidate or party would be “better” for the markets. So, it is worth examining what history tells us about that.
First, a remedial civics lesson. Under the US form of government (i.e., a federal republic), who the president is shouldn’t matter much to the markets because the president is not supposed to be that important to domestic affairs.
Congress is supposed to be the lead domestic agenda driver, as it represents the branch of government closest to its constituents.
But the evolution of the “imperial president” over the past 30-40 years has changed that dynamic, and the president is now viewed as a primary agent for the domestic agenda.
It certainly is true that, in today’s environment, any president gets too much credit when things go well economically and too much blame when things go poorly.
The underlying drivers of economic activity in a (generally) capitalistic, free market society are far too massive and unpredictable to be controlled by any one person, let alone one elected official who can only recommend policies and agendas – not force or control them.
[The caveats, as mentioned above, are Executive Orders, but those are not binding legislation and can be – and often are – overturned by a new President.]
But we digress. One thing we know for sure is that markets hate uncertainty – it is not necessarily who is in charge but rather the uncertainty about that person’s or party’s political and economic agenda that drives volatility in the markets.
The first thing we notice is that market volatility (as a proxy for uncertainty) tends to increase as we approach and then come out of biennial election cycles.
Source: Goldman Sachs, Richard Carlquist, and The Manning Companies, August 2026. You cannot invest in an index, and past performance is no guarantee of future results.
Source: John Hancock and Manulife Investments, December 2024. You cannot invest in an index, and past performance is no guarantee of future results.
We also notice that market performance tends to lag during election years in the months leading up to the election (when there is uncertainty about the candidates and the election outcomes) but then rally post-election as uncertainty diminishes.
Source: John Hancock, Manulife Investments, and Morningstar, December 2024. The 18-month periods used to calculate election year cumulative average monthly returns began in January of each year of a November presidential or midterm election and ended in June of the following post-election year. The nonelection 18-month periods began in January of each nonelection year and ended in June of the following year. You cannot invest in an index, and past performance is no guarantee of future results.
Now let’s look at the performance of the US stock market over the presidential election cycles from George W. Bush through Donald Trump’s second election in 2024, during the period from September of each election year (when most voters begin to pay attention) through the end of the following calendar year (when attention turns to the next election).
We use the S&P 500 and 600 indexes as proxies for US large and small cap stocks, respectively.
George W. Bush
September 2000 – December 2001 (remember that 9/11 occurred in September 2001)
George W. Bush
September 2004 – December 2005
Barack Obama
September 2008 – December 2009 (remember that the Great Financial Crisis – the “GFC” – occurred from October 2008 – March 2009)
Barack Obama
September 2012 – December 2013
Donald Trump
September 2016 – December 2017
Joe Biden
September 2020 – December 2021
Donald Trump
September 2024 – December 2025 (remember the announcement of the “Independence Day” tariffs in April of 2025)
Source for all charts: Ycharts. You cannot invest in an index, and past performance are no guarantee of future results.
What you see from these performance charts is no discernable pattern of market behavior based on who was elected – the market did whatever its underlying economic drivers dictated (recession or recovery, 9/11, the GFC, tariff announcements, etc.).
More importantly, over longer time horizons the market has gone up regardless of which party was in charge.
Source: John Hancock, Manulife Investments, and Morningstar, December 2024. A logarithmic scale has been applied to the growth of $1,000 in order to more clearly show changing values during the early decades of the 1928–2023 time span. Dates of political party control of the White House correspond with presidential inauguration months. You cannot invest in an index, and past performance is no guarantee of future results.
On the other hand, market performance exhibits far more of a pattern based on how the Administration and Congress are divided (or not).
Source: Morningstar Direct, January 2024. You cannot invest in an index, and past performance is no guarantee of future results.
History suggests the market performs best when there is a Democrat in the White House and Congress is split between the parties. But, of course, this is “on average” so any given scenario can occur.
It is dangerous to draw definitive conclusions from this chart – as was pointed out above there were any number of underlying economic regimes and geopolitical situations in place during each of these scenarios.
But one hypothesis – going back to the beginning of this blog – is that what the market really doesn’t like is uncertainty. Put differently, a split between the “power” in Washington (of whatever variation) often leads to political gridlock, which is another way of saying “not much new is going to happen” – that is, more certainty of the status quo, whatever that might be.
So, companies (and therefore the market) can plan and execute their business plans accordingly.
Look at how the White House and Congress have been split since Ronald Reagan’s first election in 1980 – arguably the beginning of the “imperial Presidency” era (though Reagan and Bush “41”, and then Bill Clinton, were held much more in check by their Congresses – think Speakers of the House Tip O’Neill and Newt Gingrich, respectively – in comparison to today’s environment).
Source: WiredPenn, as of November 2022. Darker yellow boxes indicate presidential election years. Republicans gained the majority of both the presidency and congress in 2024: 218-214 in the House (with one Independent and two current vacancies) and 53-45 in the Senate (with two Independents).
In only 7 of the past 23 biennial election cycles (3 of which were consecutive under George W. Bush) has one party been in control of both the White House and Congress – in all other cases there was split control.
How did the market perform over that time?
Source: DQYDJ, S&P 500 index annual returns from 1980-2025. You cannot invest in an index, and past performance is no guarantee of future results.
While it appears that total control by either party is positive for the markets (and we believe that comes back to the “certainty” argument), we see again there is no repeatable pattern between control of Washington, DC, and corresponding market behavior.
There does seem to be a higher correlation between market behavior and the underlying economic regime.
Not surprisingly, markets historically seem to perform best in a rising growth / falling inflation economic regime and worse in a falling growth / rising inflation regime.
While this chart does not capture today’s market environment (which we might characterize as “rising growth / rising inflation”), we might reasonably hypothesize that we are in an environment that is positive for market performance.
Source: US Bank Asset Management, March 2024. You cannot invest in an index, and past performance is no guarantee of future results.
Summary and Interpretation
It is a fun parlor game to attempt to corelate between who wins the Presidency and Congress and how the market will “react.” But it is just that – a parlor game.
Because of political affinities, many voters want to see such a correlation – it allegedly helps the argument to vote for their candidate.
But, unless 2026 represents an historical anomaly, it won’t matter much over the medium to longer term. And that’s the way it should be.
As we write this, this election cycle looks to be close, with both the House and Senate very much up for grabs. As such, we fully expect increased market volatility as we move closer to the election.
But, once the outcomes are known and companies can plan accordingly, we fully expect market fundamentals (economic growth, earnings, inflation, interest rates, etc.) to move to the forefront of investors’ minds.
As they should, especially for disciplined, long-term investors.
As always, we welcome your questions and feedback.