The Midterms and Beyond: What Do Election Results Mean for Your Investment Strategy?
It’s been a turbulent fall for investors. Concerns about persistently high prices, growing skepticism about tech companies’ AI spending and questions about the U.S. war with Iran have all contributed to an uncertain investment outlook. But the biggest headlines in recent weeks have been around the midterm elections, with a seemingly endless stream of commentary about what outcomes might mean for the market.
With the elections behind us, we can look forward to a break from campaign-related headlines. As the results come into focus, you might naturally be wondering what comes next and how these political shifts could impact your portfolio.
To help set the stage, our pre-midterm analysis, Beyond the Ballot Box: Midterms and Markets in Perspective, explored historical election trends and long-term positioning strategies. Building on those foundation principles, let’s take a closer look at what history and current market reactions can teach us about navigating the post-election landscape.
History can offer us some perspective, but the best approach to investing remains the same: focus on your long-term goals rather than trying to anticipate what the market might do in the short term.
What History Tells Us
There’s a lot of conventional wisdom about midterm elections and the stock market. Historically, the months leading up to midterms have earned a reputation for making investors uneasy. Stocks have often experienced greater volatility as Election Day approaches, reflecting uncertainty about potential changes in government policies and priorities. Average annual U.S. stock market returns have historically been weaker in midterm election years, rising about 7.5%, compared with 12.4% in non-midterm years.
However, since 1938, the S&P 500 has posted gains in the 12 months following midterm elections 95% of the time, regardless of who wins.
Of course, these are historical averages, not predictions. Every election takes place against a different economic backdrop, and many other factors influence stock prices.
Action After the Elections?
Going into Election Day, the stock market was strong, with the S&P 500 posting a 10.5% year-to-date return through October. On Wednesday, November 4, the day after the election, the S&P 500 rose 1.6% as the markets appeared to breathe a sigh of relief now that the outcomes were clear.
The results of the election brought a significant shift in Washington. Democrats won control of both the House and Senate, while a Republican remains in the Oval Office for two more years. That creates a divided government that might make it more difficult for Congress to get much done. Historically, that kind of political gridlock has sometimes been viewed favorably by the market as it can limit major policy changes.
On November 5, the S&P 500 posted its worst daily decline in a year, as investors continued to question whether investments in AI and data-center infrastructure will generate sufficient returns.
The sharp reversal is a useful reminder of how difficult it is to predict the market’s next move. Even as one event appears to remove uncertainty, other concerns can quickly take center stage.
Keeping Your Portfolio on Track
While the election may have changed the political landscape, it hasn’t changed a fundamental pillar of long-term investing: Avoid making major investment decisions based on the latest headlines. Whether you’re pleased or disappointed with the election results, changing your investments in response to a particular party’s gains or losses can be costly.
Instead, stay focused on your long-term goals. The past 100 years have included dozens of election cycles, political shifts, economic expansions and recessions, wars and other unexpected events. Through it all, the stock market has trended upward over the long term. Markets have historically rewarded investors who stayed invested, despite the bumps along the way.
Your financial plan was built with uncertainty in mind. You don’t need to overhaul it every time the political landscape changes or the market has a difficult week. What matters is having a strategy designed to carry you toward your goals—and giving it the time needed to work.
If the election results or recent market volatility have you questioning your investments, please reach out. Together, we can assess whether any adjustments are warranted and make sure your portfolio remains focused on what really matters: your goals for today and in the years to come.
Phillip Law, CFA
Senior Portfolio Manager
Warren Street Wealth Advisors, LLC., a Registered Investment Advisor
The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors and/or its clients may hold positions in the securities mentioned. Holdings may change at any time without notice. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.
