U.S. stock market historical performance ahead of midterm elections

Historical data spanning over 100 years indicates that U.S. stocks have averaged a 2.9% return in the 12 months preceding midterm elections, compared to an 8.9% average across all years. Conversely, the 12 months following midterm elections have seen an average return of 12.4%.

While these patterns exist, they are not considered mechanically reliable. For instance, negative returns in 2018 and 2022 were attributed to Federal Reserve rate hikes rather than the election outcomes themselves. Macroeconomic fundamentals, such as earnings, inflation, and interest rates, typically exert more influence on market performance than which political party holds power.

Data from J.P. Morgan suggests that markets often begin to rally nearly a month before election day, with an average increase of 6.6% during the election quarter. Historically, market uncertainty surrounding the election has been a more significant variable than the specific results of the vote.