What the Midterm Election Results May Mean to Your Portfolio

Every two years, midterm elections bring a wave of headlines, campaign ads, and predictions about what a shift in power in Washington could mean for the economy. Investors naturally wonder whether to position their portfolios for the outcome. Uncertainty ahead of an election can fuel bouts of market volatility, and the months leading up to midterms have historically been some of the choppiest stretches of the four-year presidential cycle.¹

History suggests, however, that the election itself rarely changes the market’s long-term direction. Once results are known and uncertainty fades, markets have tended to move on, and, more often than not, move higher.² That is partly because midterms seldom produce sweeping policy changes, and partly because elections are only one of many forces that drive asset returns. Corporate earnings, inflation, interest rates, Federal Reserve policy, and the health of the broader economy have historically mattered far more over time than which party controls Congress.³

Democrats won control of both the House and the Senate in the November 3 midterm elections. Below, we look at how markets have performed around past midterms, the policy areas most likely to be in focus after this election, and what it all may mean for your portfolio.

How have equity markets historically performed leading up to and following midterm elections?

Historically, U.S. equity markets have performed well following midterm elections. Since 1966, the S&P 500 has posted positive returns in 100% of the 12-month periods following midterms, with an average gain of approximately 13%.⁴ Returns have been even stronger over the two years following midterms, averaging approximately 25% since 1974. This trend has generally held up regardless of which political party gains or loses power.⁵ With Democrats now controlling both chambers of Congress and President Trump retaining his veto power, the result is a divided government. Democrats are well short of the two-thirds majorities needed to override a veto, so any legislation will still need the President’s signature. Regardless of the exact configuration, markets have historically reacted positively to divided government. Since 1974, 11 midterms have resulted in a divided government, with the S&P 500 averaging a 14.1% return over the following 12 months and 23.5% over the following 24 months. Ten of those 11 two-year periods were positive, with the lone exception being 2006, a period that included the Global Financial Crisis. Markets tend to like gridlock because it can reduce policy uncertainty and lower the likelihood of significant legislative changes.⁶

For illustrative purposes only. Any trends depicted or described above may not continue. Past performance is not indicative of future results. One cannot invest directly in an index. An index is unmanaged and therefore is not subject to any of the transaction costs, fees or expenses associated with an actual investment. S&P 500 returns shown are price returns and exclude dividends.

What areas could be affected after the midterms?

• Health insurance costs: The expanded Affordable Care Act subsidies expired at the end of 2025. Since then, premiums have risen, and fewer people are enrolled in marketplace plans.⁷ Democrats have made restoring these subsidies a top priority. With control of both chambers, they are likely to push for an extension, but it would still need the President’s signature, making it a likely bargaining chip in upcoming spending negotiations. The outcome matters for health insurers that sell marketplace plans and for hospitals and other providers likely seeing more unpaid bills as patients lose coverage.⁸
• Prescription drug prices: Both parties and the White House support lowering drug prices. Options under discussion include letting Medicare negotiate prices on more drugs, tying U.S. prices to what other countries pay, and tighter rules for pharmacy benefit managers.⁹ Much of this is already happening through executive action. More aggressive legislation would put further pressure on drug makers’ U.S. revenue, though it would likely face a veto, making bipartisan measures such as pharmacy benefit manager reform the more realistic path.
• Data centers and AI’s power needs: Democratic gains at the state level could bring tighter rules on data centers. Democrats won governor’s races in Texas, Georgia, Michigan, Nevada, and Ohio. Except in Ohio, Democrats campaigned on stricter data center rules, including temporary pauses on new construction, fewer tax breaks, and tougher environmental, water, and electricity standards. Together, these states account for roughly 45% of planned U.S. data center capacity, with Texas alone at about 25%. However, data centers ranked low among voters’ priorities, so the issue may fade in the coming months, and any construction pauses may prove short-lived. Alongside the debate over whether and where data centers should be built, there’s a growing debate over who should pay for the new power plants and transmission lines they need.¹⁰ If policymakers decide data centers should bear more of that cost, utilities and grid operators could benefit from clearer rules. Some data center projects, however, could become less profitable, and local restrictions could slow AI infrastructure spending.¹¹
• Government spending: Congress has mostly funded the government through short-term extensions rather than full annual budgets. The current funding extension expires December 11. That deadline falls to the current Congress, but the new Democratic Congress takes office in January, giving it greater leverage over future funding negotiations and raising the potential for standoffs with the White House. Any agreement that raises non-defense spending would help government contractors, federal suppliers, and research and health care organizations that rely on federal grants.
• Corporate taxes: The 2025 tax law made several business tax breaks permanent, and the 21% corporate rate was already permanent. With the President able to veto any tax increase, the midterms are unlikely to change tax law.¹² We believe that corporate earnings for 2027–2028 may be largely unaffected either way. The longer-term question is what happens after the 2028 election.

Should investors change their portfolios based on the election outcome?

Broadly speaking, no, we don’t believe so. While election outcomes can create short-term market volatility and influence specific industries, corporate earnings, business investment, interest rates, and broader economic conditions tend to be more important drivers of long-term investment returns. One example is the energy sector’s performance over the most recent administrations. Energy was the worst-performing sector under Obama’s presidency and Trump’s first term but was among the best-performing under Biden and Trump’s second. Additionally, the Technology sector has been one of the top performers across all of the last four presidencies, regardless of political leadership. In short, sector and market performance is driven more by the macroeconomic and interest rate backdrop than politics.¹³ We think this time will likely be similar, as we believe Federal Reserve policy, inflation, interest rates, and corporate earnings will have a bigger impact on the markets than the election outcome itself.¹⁴ Because of this, we think it’s prudent for investors to ignore most of the political noise and stay focused on their long-term investment objectives, maintaining a portfolio allocation aligned with their long-term financial goals and risk tolerance.