Markets hate uncertainty — and few occasions create extra widespread uncertainty than nationwide election years.
In a current Market on Shut livestream, Senior Market Strategist John Rowland defined a lesser-known however highly effective historic sample: midterm election years are typically a few of the most risky durations for the S&P 500 Index ($SPX). It’s not on account of partisan politics, however quite the results of how pre-election uncertainty impacts positioning, capital allocation, and investor psychology.
The information goes again almost a century, and the message is constant.
Wanting again to 1962, the S&P 500 has constantly underperformed within the 12 months main as much as midterm elections. The typical return for the index on this interval is a drop of 1.1%, in comparison with a constructive return of 11.2% throughout non-midterm durations.
Moreover, the common unfavourable return is a staggering 18%, together with a 22% decline within the 12 months main as much as the 2022 midterms.
This doesn’t imply markets should crash within the new 12 months. There are some constructive returns blended into the dataset, too, and the market by no means follows a single script.
Nevertheless, this sample means that as we head into 2026, heightened volatility turns into extra doubtless, rallies usually tend to be capped, and pullbacks are typically deeper than buyers are used to throughout robust bull cycles.
John additionally highlights a broader sample tied to this habits — a repeating three-year market cycle.
Traditionally, markets have usually skilled a number of years of robust beneficial properties adopted by a weaker or corrective 12 months, which continuously aligns with midterm election cycles. These “down” years don’t all the time produce full-fledged bear markets, however they usually result in imply reversion (in different phrases, a cooling-off interval after robust returns).
As a substitute of double-digit annual beneficial properties, buyers could face a stretch the place returns flatten into the low single digits or oscillate with larger volatility.
What makes this dialogue particularly related is timing.
