2026 midterm elections and their potential impact on stock markets

As the 2026 midterm elections approach, investors are evaluating the potential impact of political shifts on the stock market. While elections often influence fiscal policy, tax legislation, and regulatory environments, historical data suggests that long-term market returns are more closely tied to inflation and economic growth than to specific election outcomes.

Research from U.S. Bancorp indicates that a divided government—specifically one where a Republican holds the presidency while Democrats control both houses of Congress—has historically correlated with lower market performance. Data shows that in such scenarios, the S&P 500 has tended to deliver three-month returns approximately 0.99% lower than the historical average.

Beyond the balance of power in Congress, market participants are monitoring trade policy, energy production, and domestic manufacturing. While unified governments can drive substantial policy changes, periods of divided government often result in legislative gridlock, which can create a more predictable environment for businesses by limiting major policy swings.