Markets hate uncertainty — and few events create more widespread uncertainty than national election years.
In a recent Market on Close livestream, Senior Market Strategist John Rowland explained a lesser-known but powerful historical pattern: midterm election years tend to be some of the most volatile periods for the S&P 500 Index ($SPX). It’s not due to partisan politics, but rather the result of how pre-election uncertainty affects positioning, capital allocation, and investor psychology.
The data goes back nearly a century, and the message is consistent.
Looking back to 1962, the S&P 500 has consistently underperformed in the 12 months leading up to midterm elections. The average return for the index in this period is a drop of 1.1%, compared to a positive return of 11.2% during non-midterm periods.
Additionally, the average negative return is a staggering 18%, including a 22% decline in the 12 months leading up to the 2022 midterms.
This doesn’t mean markets must crash in the new year. There are some positive returns mixed into the dataset, too, and the market never follows a single script.
However, this pattern suggests that as we head into 2026, heightened volatility becomes more likely, rallies are more likely to be capped, and pullbacks tend to be deeper than investors are used to during strong bull cycles.
John also highlights a broader pattern tied to this behavior — a repeating three-year market cycle.
Historically, markets have often experienced multiple years of strong gains followed by a weaker or corrective year, which frequently aligns with midterm election cycles. These “down” years don’t always produce full-fledged bear markets, but they often lead to mean reversion (in other words, a cooling-off period after strong returns).
Instead of double-digit annual gains, investors may face a stretch where returns flatten into the low single digits or oscillate with higher volatility.
What makes this discussion especially relevant is timing.
finance.yahoo.com
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