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Markets are showing signs of anxiety ahead of the midterm elections, but decades of S&P 500 performance suggest the vote could clear the way for stronger returns. That pattern has held across red waves, blue waves, divided outcomes, and continued control in Washington.

A CNBC analysis of S&P 500 returns following elections from 1980 through 2024 found that the index rose an average of 0.2% after one day and one week. The average gain reached 1.1% after one month across presidential and midterm elections.

The longer term record was considerably stronger. One year after midterms, the S&P 500 gained an average of 13.7%, compared with an average increase of 13.8% following presidential elections.

Returns were positive in 91% of the cases examined. The index also finished higher one year after all 11 midterm elections held from 1982 through 2022, giving investors a remarkably consistent historical trend.

Short term results proved less dependable, particularly after presidential elections. Those contests generated slightly negative average S&P 500 returns after both one day and one week.

“There’s some anxiousness before these elections,” Ryan Detrick, CNBC contributor and chief market strategist at Carson Group, told CNBC. “Once you are through it, it’s a big relief and markets tend to do pretty well.”

The market’s historical preference has leaned toward divided government, with one party controlling the White House and the other holding at least one chamber of Congress. Results following those arrangements exceeded the returns recorded after elections that produced unified control.

Across 10 midterm elections and five presidential elections that left no single party in charge, the S&P 500 gained an average of 15% after one year. Returns were positive in 14 of those 15 cases.

By comparison, elections resulting in single party control were followed by an average one year gain of 11.5%. The difference supports the historical pattern that markets have performed better when political power is divided.

“If you have a huge red wave or a big blue wave, markets actually kind of don’t like that as much because you have too much spending one way and too much power,” Detrick said.

A result leaving Democrats in control of Congress and a Republican in the White House has also produced gains over time. That outcome could emerge from the elections on Tuesday, according to the source analysis.

Following the three midterms in 1986, 1990, and 2006, when Democrats controlled both chambers and a Republican held the presidency, the S&P 500 fell an average of 0.5% on the reaction day. It then gained 3.4% after one month and 10.9% after one year.

Election results, however, can coincide with forces that carry much greater weight for stocks. The S&P 500 sank 22.1% in the year after the 2000 election because of the dotcom bust, producing the worst post election performance in the analysis since 1980.

The strongest post election year followed the 2020 contest, when the index surged 38.3%. Markets were staging a major comeback from the selloff caused by COVID at the time.

Société Générale said investors should remember that Federal Reserve policy and the corporate earnings cycle ultimately matter more than election outcomes. The aftermath of the 2018 midterms illustrated that tension after Democrats took control of the House during President Donald Trump’s first term.

The Fed raised interest rates four times in 2018, and the S&P 500 ended that year down 6.2%. Despite that decline, the index was 11.7% higher one year after the election.

AI now represents a major swing factor, particularly if technology shares continue declining. Detrick said that as long as the AI wave continues and the economy keeps growing, “this bull market is probably still alive and well.”

A Democratic sweep of the House and Senate would almost certainly pressure the AI infrastructure buildout and could produce additional retrenchment. Meanwhile, global bond yields are rising, France is confronting a mini debt crisis, and the war with Iran could worsen after the election.

“Seasonality isn’t destiny, and worries around Iran, AI and France won’t mysteriously vanish,” Jim Reid, Deutsche Bank’s global head of macro and thematic research, wrote in a note.

History therefore leaves room for a Santa rally and further S&P 500 gains after the midterms. Yet this remains an AI driven market in which geopolitics, Federal Reserve decisions, corporate earnings, and the bond market continue to command attention.

DISCLAIMER: GoldInvestors.news is not a registered investment, legal or tax advisor or broker/dealer. All investment/financial opinions expressed by GoldInvestors.news are from the personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.