Markets Tend To Rally After U.S. Elections, CNBC Analysis Shows

Markets are jittery, but history leans positive

Investors are on edge heading into the midterms, which tracks with Ryan Detrick's take: "There's some anxiousness before these elections." The Carson Group chief market strategist, who is also a CNBC contributor, added that once the vote is done, "it's a big relief and markets tend to do pretty well."

CNBC's look at elections from 1980 through 2024 backs that up. Across midterms and presidential contests alike, the S&P 500 saw average moves of +0.2% at both the first-day and first-week checkpoints, and +1.1% after one month. Near-term wiggles aside, the bigger pattern shows up over a full year.

The year-after story and why gridlock wins

In the subsequent 12 months, average S&P 500 returns came in at 13.7% following midterms while presidential contests averaged 13.8%, with gains in 91% of periods. The index also finished higher after every midterm from 1982 through 2022.

Government makeup matters. Across 10 midterm contests and five presidential ones that yielded split control - one party in the White House and the other running at least one chamber of Congress - the S&P 500 returned an average 15% over the next year, with 14 of 15 outcomes positive. When a single party held everything, the next-year average was 11.5%. As Detrick put it, "If you have a huge red wave or a big blue wave, markets actually kind of don't like that as much because you have too much spending one way and too much power."

History also favors one specific split: when Democrats ran both chambers and a Republican was president - seen after the 1986, 1990 and 2006 midterms - the S&P 500 slipped about 0.5% on the reaction day, then was up 3.4% after a month and 10.9% after a year.

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Context, caveats, and past swings

Short-run outcomes are more volatile, particularly after presidential elections, which on average showed slight declines at the 1-day and 1-week marks. And sometimes bigger forces overwhelm the election effect entirely.

Amid the dotcom bust, the S&P 500 fell 22.1% over the year after the 2000 election, the weakest post-election 12-month stretch since 1980. At the other extreme, the index jumped 38.3% in the year following the 2020 election as markets rebounded from the COVID selloff.

Policy and profits typically steer stocks more than politics. Société Générale notes that Federal Reserve decisions and the corporate earnings cycle carry greater weight. Look at 2018: after Democrats took the House in President Donald Trump's first term, the Fed raised rates four times; the S&P 500 finished the year down 6.2%, yet stood up 11.7% one year after the election. In a client note, Jim Reid, who leads macro and thematic research globally at Deutsche Bank, wrote, "Seasonality isn't destiny, and worries around Iran, AI and France won't mysteriously vanish."

What this could mean for your portfolio

This tape is still anchored to AI. Detrick thinks "this bull market is probably still alive and well" as long as the AI wave keeps rolling and the economy grows.

Bond markets are uneasy with yields rising worldwide, alongside what amounts to a mini debt crisis in France.

If the usual pattern appears, a late-year pop is possible and post-midterm gains tend to follow. But this remains an AI-driven market, with the Fed, geopolitics, and bonds setting the boundaries.

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