Will Midterms Affect Market Performance?

September 12, 2022
Stocks tend to outperform after midterm elections. Will the trend hold?

The correlation between stock market performance and midterm elections is well documented. In 17 of the 19 midterms since 1946, the market performed better in the six months following an election than it did in the six months leading up to it.

Out of sync

This year's market performance has already diverged significantly from the average midterm election year.

The S&P 500 Index's performance in U.S. midterm election years has averaged gains around 0%–3% over 52 weeks. In 2022, the market has been down consistently, with a low of negative 23% in week 24 before improving to about negative 15% in week 34.

Source: Charles Schwab, Bloomberg, as of 09/01/2022.

Returns are for midterm election years going back to 1930. For illustrative purposes only. Past performance is no guarantee of future results.

So, with the upcoming midterms on November 8, can investors expect similarly strong post-election performance well into next spring?

"Post-election outperformance is often driven by the market's expectation of increased government spending from a new Congress," says Liz Ann Sonders, Schwab's chief investment strategist. "But an additional infusion of funds seems unlikely this year, given the government's historic levels of spending and stimulus in response to the pandemic." In fact, all that money is one contributor to the 40-year high in inflation, and any new spending would likely exacerbate the issue.

"The combination of high inflation, the war in Ukraine, and a lingering pandemic has already made this cycle unlike prior midterm years," Liz Ann says. "With so many other forces at play in the market, I wouldn't put much weight in historical midterm-year performance." 

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The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

The policy analysis provided by the Charles Schwab & Co., Inc., does not constitute and should not be interpreted as an endorsement of any political party.

Correlation is a statistical measure of how two investments have historically moved in relation to each other, and ranges from –1 to +1. A correlation of 1 indicates a perfect positive correlation, while a correlation of –1 indicates a perfect negative correlation. A correlation of zero means the assets are not correlated.

Past performance is no guarantee of future results, and the opinions presented cannot be viewed as an indicator of future performance.

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