Last month, we looked at how markets have historically behaved during midterm election years. This week, we turn to a related question: what happens to Congress, and does it matter for your portfolio?
Let’s start with what history tells us about the election itself. Midterm elections have been remarkably consistent in one respect: the president’s party almost always loses ground. Across the past 23 midterm elections, the party holding the White House has lost an average of 27 seats in the House of Representatives and 3 seats in the Senate. Only twice in that span has the president’s party managed to gain seats in both chambers.
There are two main reasons this pattern holds. First, voters aligned with the party out of power tend to be more motivated, and that energy translates into turnout. Second, presidential approval ratings typically decline during the first two years of a term, which can sway swing voters and frustrated constituents toward the opposition. With Republicans currently holding slim majorities in both chambers, even a modest version of the historical pattern would be enough to flip control of the House, the Senate, or both.
Here is the important part for investors: because this pattern is so well established, markets tend to price it in early. The expectation that the president’s party will lose seats is rarely a surprise by November. What remains uncertain until later in the year is the size of the shift and its policy implications, which helps explain the volatility that often builds in the months just before a midterm.
But suppose you knew the outcome today. Would it tell you much about market returns? History suggests it would not. Going back to 1933, the S&P 500 has averaged double-digit annual returns across every configuration of government: roughly 14.5% when one party controlled the White House and both chambers of Congress, 11.7% when Congress was unified against the president’s party, and 13.8% under a split Congress. Markets have rewarded patient investors under unified governments, divided governments, and everything in between.
The cost of ignoring that lesson can be steep. One recent study found that a $100,000 investment in the S&P 500 at the start of 2013 would have grown to roughly $398,000 by early 2026 if left fully invested. An investor who moved to cash whenever their preferred party was out of power would have ended with somewhere between $186,000 and $214,000, depending on which party they favored. Letting political preferences drive investment decisions cut the final result nearly in half.
So as the campaign ads ramp up and the predictions start flying over the coming months, keep this history in mind. Elections have real consequences, and none of this is meant to suggest otherwise. But as far as your portfolio is concerned, the makeup of the next Congress has historically had far less influence on long-term returns than most investors assume. The businesses you own do not stop innovating, selling, and compounding based on which party holds the gavel.
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