History Favors Stocks Post-Midterms, But Experts Say Fundamentals Matter More

07:48 AM EDT, 10/23/2026 (MT Newswires) -- US equity markets typically rise following midterm elections, but many on Wall Street aren't convinced the outcome matters as much as long-term fundamentals do. With the US midterm election scheduled for Nov. 3, what to expect afterward is top of mind for many investors. The S&P 500 has posted an average gain of about 15% in the 12 months following midterm elections since 1950, J.P. Morgan Asset Management said in a note Oct. 7. That's because getting past elections helps markets refocus on the fundamentals that include corporate earnings, monetary policy and the artificial intelligence spending boom, J.P. Morgan Global Market Strategist Jordan Jackson said. "In short, history is on the side of investors after midterms," Jackson said. "Rather than trying to trade around the election, investors should stay invested, remain diversified and keep their focus on the longer-term drivers of returns." The benchmark equity index's return has averaged 5.7% and 12.4% in the three and six months, respectively, following midterm elections since 1974, Charles Schwab said Aug. 18. "Markets often experience election-related volatility, but history suggests investors are generally better served by staying focused on long-term goals rather than making portfolio decisions based on election outcomes," Charles Schwab Managing Director of Legislative and Regulatory Affairs Michael Townsend said. Both Jackson and Townsend, however, cautioned against interpreting historical averages as forecasts. "No statistic should be taken in isolation," Jackson said. "Past midterm cycles have unfolded against very different economic backdrops." Republicans hold slim majorities in both the US House of Representatives and Senate. At stake in the midterm election are all 435 House of Representative seats and 35 Senate jobs. The NBC News average of national polls shows majority of Americans prefer a Congress controlled by Democrats. This comes as President Donald Trump's approval ratings have fallen to 36% as of Oct. 22 from 42% at the start of the year amid higher energy prices due to the Iran war, according to The New York Times' daily average of polls. The eventual congressional control will determine the Trump administration's ability to shape legislation around taxes, government spending and business regulation, Wells Fargo Investment Institute said in a report published Oct. 15. While that could have implications for certain sectors, it is unlikely to influence the direction of broader equity markets, Wells Fargo wrote. "Policy changes related to healthcare subsidies, housing affordability, energy, AI and data center investment could have greater impact on the relative performance of specific sectors, rather than altering the direction of the broader market," Wells Fargo said. If Democrats get control of Congress, some technology companies could face greater scrutiny around competition, data privacy and AI, Morgan Stanley said last month. Energy producers could be subject to a renewed focus on prices, taxes and fossil fuel. A Democratic House would reduce the odds of major Republican legislation passing and increase the possibility of fiscal deadlines, appropriations fights and the 2027 debt-limit negotiations becoming "market-relevant events," Townsend said. But data show that a divided government could create a more stable backdrop for equities, Monica Guerra, head of policy and geopolitical strategy at Morgan Stanley Wealth Management, wrote in a Sept. 23 note. The strongest average S&P 500 return in the year after midterm elections under a Republican president came when Congress was split between the two parties, Guerra said. "Investors should treat the midterms as an important policy event, but not as the primary driver of portfolio decisions," Guerra said. "Macroeconomic conditions, the business cycle, inflationary pressures and the (AI) investment cycle are likely to remain the primary drivers of market performance." The S&P 500 is up nearly 12% year to date, while the Nasdaq Composite and the Dow Jones Industrial Average have advanced 12% and 10%, respectively. The rally has been powered by a few tech heavyweights, fueling concerns about a potential stock market correction. Broad-based corporate earnings strength has been a tailwind to equity markets, J.P. Morgan Private Bank said in an Oct. 9 note. S&P 500 third-quarter earnings are expected to grow about 29% year over year, which would mark the eighth consecutive quarter of double-digit growth, the longest streak since the rebound that followed the Global Financial Crisis, J.P. Morgan Private Bank wrote. "While technology continues to lead the earnings story, it is no longer the only story," J.P. Morgan Global Head of Equity Strategy Christopher Baggini and Global Investment Strategist Kriti Gupta wrote. "While five of the 11 S&P 500 sectors are expected to deliver growth above 10% this quarter, as many as seven sectors have the potential to exceed that threshold." Besides earnings, Wall Street is closely tracking the Federal Reserve's policy outlook after the central bank delivered its first rate hike in just over three years last month. At the time, the Fed signaled another increase later this year. The Fed is likely to deliver less tightening than markets expect, which should support the bond market and ease pressure on discount rates, Jackson said. Meanwhile, the US economy has been resilient, with gross domestic product expected to grow about 2% through 2027, he said. "Political calendars do not drive markets on their own, and investors should focus on today's backdrop, which in our view supports a constructive outlook on risk assets," Jackson said. Trump still retains the power to veto legislation passed by Congress, even if Democrats were to flip both the House and Senate after the elections. "Ultimately, the Trump administration will continue to control the executive branch and pursue many of its policy priorities through executive action," Raymond James said in an Oct. 8 report. "As a result, the primary check on the White House is likely to remain the courts, which, as illustrated by the Supreme Court's ruling against the International Emergency Economic Powers Act tariffs, can play a significant role in shaping policy outcomes."