After a down year in 2022, the S&P 500 (^GSPC 1.03%) has pulled off three consecutive years of double-digit gains (16% in 2025, 23% in 2024, and 24% in 2023). It's only the eighth time that this has happened since 1926.
Who knows what 2026 holds for the stock market's most popular index? But with the U.S. midterm elections in November, there's an interesting pattern worth noting. It's a historical pattern that could work in investors' favor -- but there's a catch.
Image source: Getty Images.
It can get cloudy before it gets sunny again
History shows that the S&P 500 often hits a rough patch in the year leading up to the midterm elections. The good news is that in the 12 months after, the S&P 500 has typically gone on a good run.
| Midterm Date | Largest Drawdown Before Midterm | S&P 500 Returns Post-Midterms (12m) |
|---|---|---|
| Nov. 8, 2022 | (25.4%) | 13.6% |
| Nov. 6, 2018 | (10.2%) | 12% |
| Nov. 4, 2014 | (7.4%) | 4.5% |
| Nov. 2, 2010 | (16%) | 2.1% |
| Nov. 7, 2006 | (7.7%) | 6.6% |
| Nov. 5, 2002 | (33.8%) | 14.9% |
| Nov. 3, 1998 | (19.3%) | 22% |
| Nov. 8, 1994 | (8.9%) | 25.9% |
| Nov. 6, 1990 | (19.9%) | 24.7% |
| Nov. 4, 1986 | (9.4%) | 1.9% |
Data source: Longview Economics. Drawdowns are the biggest declines from peak to trough.
These are just the past 10 midterms, too. Dating back to the 1926 midterm, the average S&P 500 returns in the 12 months after are 13.6%. The only two times that it finished negatively were after the 1930 and 1938 midterms.
Every situation is different, but one broad reason this tends to be the case is that there's more certainty after the midterms. Leading up to it, there's a chance new leadership could mean new regulations, tax rule changes, or anything that could throw corporate America off. After the midterms, the landscape is much more predictable (relatively speaking).
Don't take it as the gospel
It's important to remember that past results don't guarantee future results. Seeing this trend doesn't mean you should avoid investing until the midterm or rush to put lump sums in right after the midterms, assuming it's guaranteed.
More than anything, this should be a reminder of how volatile the market tends to be. The S&P 500 has been a roller coaster ride since the beginning, but one thing has remained true: It has grown over time.
The best approach for most investors is to use dollar-cost averaging. When you dollar-cost average, you set a fixed investment schedule and stick to it regardless of stock prices. You'll inevitably invest when prices are high, and you'll inevitably invest when they're cheaper. The key is forcing yourself to remain consistent and trusting that it will work out over time.
