Dear reader,
The stock market just keeps climbing.
The Dow traded above 50,000 last week. The S&P 500 and Nasdaq are sitting near record highs. And investor confidence has clearly returned after the volatility earlier this year.
But there is one major event sitting on the calendar that investors cannot ignore:
The November midterm elections.
Midterm years have a very specific market personality.
They are often choppy. They are often emotional. And they often create volatility in the months leading up to Election Day.
And this year is no different. Some may argue this year is even more concerning because of the ongoing war in the Middle East and the concerns of higher inflation and a new Fed Chairman.
However, that does not mean investors should panic. In fact, history suggests the opposite.
What History Tells Us About Midterm Markets
Midterm election years have historically been some of the more volatile periods for investors - but they have also often created excellent buying opportunities.
Since 1950, the S&P 500 has averaged a drawdown of roughly 18% during midterm election years before ultimately recovering. This year’s max drawdown reached 9% in March.
Historically, markets often struggle in the first three quarters of a midterm year as uncertainty rises around control of Congress, taxes, spending, and regulation.
But once the election passes and uncertainty clears, stocks have tended to perform very well.
According to data from CFRA and Yardeni Research, the S&P 500 has risen in the 12 months following every midterm election since 1950, with average gains often landing in the mid-to-high teens.
That pattern is important because it reinforces a key reality of investing:
Periods of political uncertainty often feel uncomfortable in the moment, but they frequently create some of the best long-term entry points for investors willing to stay disciplined. This shows that which party controls Congress has historically mattered less to long-term returns than investors may assume.
That is the key point.
Markets do not hate Democrats. Markets do not hate Republicans.
Markets hate uncertainty.
What a Split Congress Could Mean for Your Portfolio
Republicans currently control Washington with narrow majorities, but prediction markets are already showing a real chance of a split government after November.
Polymarket’s midterm tracker recently showed Democrats favored to win the House, while Republicans remained favored to hold the Senate.
That matters because a split Congress could change the market narrative quickly.
Investors would immediately begin pricing in the possibility of legislative gridlock, more oversight, slower policy movement, and a tougher road for major fiscal changes.
But again - that is not necessarily bearish.
Gridlock can be market-friendly because it reduces the odds of major policy surprises.
The bigger issue is the road between now and November.
As we get closer to Election Day, every poll, debate, headline, and prediction-market swing could move sectors tied to taxes, regulation, defense, energy, healthcare, infrastructure, and technology.
That means volatility could rise.
And that is exactly why investors need a plan now - before the political headlines start dominating the market conversation.
Bottom Line
History says midterm years can be uncomfortable. But it also says the months after the election can create powerful opportunities.
My message is simple: Do not let politics drive your portfolio.
Use the volatility.
Stay focused on the big trends.
And be ready to buy great companies when election-year uncertainty gives us better prices.
Here’s to the future,
Matt McCall
Founder, NXT Wave Research
