The Midterm Market Effect

US midterm elections have historically affected the timing of equity gains more than their 12-month destination under Republican presidents.

• Across 10 midterm elections from 1954 to 2018, the average S&P 500 price return was 6.6% after 3 months, 14.8% after 6 months, 16.8% after 9 months and 14.9% after 12 months.
• The 12-month averages were 14.9% when Republicans controlled both chambers, 15.5% with a Republican Senate and Democratic House, and 14.8% with Democratic control of both chambers.
• The entire 12-month spread between those three congressional outcomes was only 0.7 percentage points, although the small Republican-control sample included just one election, in 2002.
• In the sector analysis covering nine periods from 1990 to 2022, Information Technology produced the highest average one-year forward return at 30.93%, while Energy was lowest at 4.38%; the S&P 500 averaged 14.46%.
• Information Technology, Industrials and the S&P 500 had 100% positive one-year forward periods in the sample, while sector results varied more widely, with Financials ranging from -15.39% to 50.65%.

Takeaway: Investors should not assume that a change in congressional control will determine equity returns over the following year, but the historical sample is limited and corporate fundamentals, interest rates, regulation and policy changes remain important drivers.