Market Volatility and the 2026 Midterm Elections: What History Tells Us

Oct. 9, 2026, By Kimmy Wan

With the November 3 midterm elections approaching, many investors are wondering how the results might affect their investments. Will Wall Street cheer if Republicans keep control of Congress? Will investors celebrate if Democrats take over? Or will the stock market surprise everyone? Let's sit back and watch the political fireworks.

Let’s take a look back at history and see what we can learn. Just keep in mind that election results are only one piece of a much bigger economic picture.

Financial markets generally dislike uncertainty. Before an election, investors may be unsure about future tax policies, government spending, business regulations, and global economic decisions. These questions can influence business confidence and investor sentiment. As election results become clearer, some of that uncertainty may disappear. However, the stock market must still respond to interest rates, inflation, corporate earnings, and economic policies.

What happened during the last six midterm elections?

Here’s some interesting research I found from PNC and Morningstar. Figure 1 shows the S&P 500’s annual returns during midterm election years, while Figure 2 shows the returns in the following calendar years. Let’s see what history tells us!

Looking at the six midterm election years from 2002 through 2022, the S&P 500 experienced both strong gains and big losses. In 2002, stocks fell sharply following the technology bubble. In 2006, 2010, and 2014, the market finished higher, while 2018 and 2022 saw declines amid concerns such as rising interest rates.

History reminds us that the market's direction depends more on the economic cycle than on which political party wins or loses an election. A midterm election alone doesn't determine whether stocks go up or down. The economy keeps moving, regardless of who's in control of Congress.

BUT… here comes the interesting part!

Does that mean Wall Street doesn't care who wins? Of course it does! Republicans win, Democrats win. Either way, Wall Street is watching. Investors need to know what happens next. Will taxes go up or down? Will businesses face more regulations? Will government spending boost the economy or add to inflation?

At the end of the day, Wall Street doesn't vote Republican or Democrat. It votes for profits!

Now, take a look at this interesting chart I found from BlackRock! Something that might surprise you: During both the Trump-era 2 and Biden-era 1 midterm election years, Energy was the top-performing S&P 500 sector. And while everyone is talking about AI these days, Information Technology ranked second in the chart's comparison. Who would have thought? Sometimes the market's biggest winners aren't the ones making the most headlines!

What Is Our Strategy During Market Volatility?

At KW Wealth Management, we don't make investment decisions based on election predictions. Our focus remains on each client's financial goals, investment time horizon, income needs, and risk tolerance.

But that doesn't mean we sit back and do nothing when markets get volatile! We make thoughtful adjustments when market conditions and our clients' needs call for them.

When markets are uncertain, here are some of the strategies we use:

• Invest new cash gradually. Rather than investing a large amount all at once, we may use dollar-cost averaging to spread purchases over time and reduce the risk of investing everything during a market adjustment.

• Adjust bond holdings when interest rates rise. We may trim certain bond funds or reduce interest-rate-sensitive industry holdings when appropriate, since rising rates can put downward pressure on existing bond prices and on leveraged business models.

• Keep more cash available when needed. For clients planning major withdrawals or facing higher living expenses, we may maintain larger cash reserves so they don't have to sell investments during an unfavorable market.

• Stay focused on the long term. We continue monitoring portfolios and making adjustments based on economic conditions and individual financial needs, rather than reacting emotionally to any party's headlines.

  
  

Market volatility can be uncomfortable, especially for retirees and those approaching retirement. That's why we plan ahead. Our goal is to help our clients stay financially prepared, whether the market goes up, down, or takes a few unexpected turns along the way!

Final Thoughts

Elections come and go, and the market will always have something to worry about. Sometimes it's politics, sometimes it's inflation, the national debt, healthcare costs, interest rates, or even air quality.

There's always something!

That's what I've seen over my 28 years in this business. I've spent countless hours reading research from economists, talking with many very smart clients, and understanding their different financial situations, concerns, and needs. One thing I've learned is that no two clients are alike. That's why I believe good investment management is about much more than watching the market or predicting the next big move.

It's about understanding YOU. Your goals, your needs, your concerns, and what matters most in your life. That's what drives the architecture of your portfolio. Not the election, not the headlines. Just YOU.

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Disclaimer

This article is provided by KW Wealth Management LLC, an SEC-registered investment adviser, for general informational and educational purposes only. It is not intended to provide personalized investment, legal, tax, or accounting advice or to constitute a recommendation to buy or sell any security.

The information and opinions expressed are based on sources believed to be reliable; however, their accuracy and completeness are not guaranteed. References or links to third-party websites, research, or publications are provided for informational purposes only and do not imply endorsement by KW Wealth Management LLC. We do not control or independently verify all third-party content.

Investing involves risk, including possible loss of principal. Past performance is not indicative of future results. Market conditions and individual circumstances vary. Readers should consult qualified professionals before making financial decisions based on their specific circumstances.