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Midterm Uncertainty Unlikely to Rattle Wall Street ETFs: Here's Why
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Key Takeaways
Midterm history points to stronger post-election stock returns.
Robust earnings could support S&P 500-focused ETFs.
Strong holiday spending offers another boost to retail ETFs.
Wall Street appears largely unfazed by the uncertainty surrounding the upcoming midterm elections, which are scheduled to be held, in large part, on Nov. 3, 2026. Two key factors may explain why investors remain relatively comfortable despite the potential for political and policy shifts.
History Favors Stocks After Midterms
Historical market trends provide one reason for the optimism. The S&P 500 has delivered positive returns in every one-year period following a midterm election since 1946, according to Truist chief strategist Keith Lerner, as quoted on Yahoo Finance.
The average gain during these periods has been 14.4%, while the strongest performance came after the 1954 midterms, when the index surged 34%.
The broader seasonal pattern is also encouraging. Lerner noted that the S&P 500 has gained an average of 6.6% during the fourth quarter of midterm-election years since 1950 and finished higher 84% of the time.
With the S&P 500 roughly flat since June, the market has broadly reflected the historically volatile pattern associated with midterm years. However, seasonal trends typically become more favorable as the fourth quarter progresses.
All these historical data points indicate a potential rally in ETFs like Vanguard 500 Index Fund ETF Shares (VOO - Free Report) and Invesco S&P 500 Equal Weight ETF (RSP - Free Report) .
Strong Corporate Profits Offer Another Cushion
A powerful earnings backdrop is giving investors another reason to look beyond political uncertainty.
The overall setup remains extremely favorable as the Q3 earnings season takes center stage. S&P 500 earnings are expected to increase 24.6% year over year, marking the eighth straight quarter of double-digit earnings growth for the index. Q3 earnings are expected to be above the year-earlier level for 15 of the 16 Zacks sectors, with six sectors expected to enjoy double-digit growth.
Expectations remain robust for the quarters ahead. For 2026 Q4, the expectation is that S&P 500 earnings will grow by 27% from the same period last year on 11.8% higher revenues. WisdomTree U.S. LargeCap ETF (EPS - Free Report) could be a good pick in this case.
Election Results Could Create Different Market Outcomes
The market reaction could ultimately depend less on which party wins and more on the type of political control that emerges, according to Morgan Stanley strategists, as mentioned in the same Yahoo Finance article.
They expect seasonal conditions to become more supportive from October but acknowledge that a stronger-than-expected Democratic showing could trigger a near-term pullback.
Holiday Spending Set for Strong Growth
U.S. holiday retail sales are expected to hit a record $1 trillion-plus during the November-December shopping season, according to Bain & Company. Sales are projected to rise 4.5% year over year, faster than the 3.5% growth seen in 2025. The data puts the ProShares Online Retail ETF (ONLN - Free Report) in focus.
Since 1974, the S&P 500 has delivered an average return of just 1.7% from Aug. 1 through Election Day, per Charles Schwab. But markets normally see a "relief rally" in the months after an election. Since 1974, the S&P 500 has averaged a 5.7% return in the three months immediately following a midterm election, with 11 of the 13 years producing a positive return.
And in the six months following a midterm election, the S&P 500 has averaged a 12.4% return across the same years, with all 13 years showing positive returns, per Charles Schwab.
Earnings May Matter More Than Politics
Ultimately, the market may remain focused on corporate fundamentals rather than election headlines. Strong earnings expectations provide an important cushion, while historical data suggest that the period following midterm elections has generally been favorable for stocks.
That combination could allow equities to look beyond political uncertainty, although elevated bond yields, energy prices and the eventual election outcome remain important risks for investors.
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Midterm Uncertainty Unlikely to Rattle Wall Street ETFs: Here's Why
Key Takeaways
Wall Street appears largely unfazed by the uncertainty surrounding the upcoming midterm elections, which are scheduled to be held, in large part, on Nov. 3, 2026. Two key factors may explain why investors remain relatively comfortable despite the potential for political and policy shifts.
History Favors Stocks After Midterms
Historical market trends provide one reason for the optimism. The S&P 500 has delivered positive returns in every one-year period following a midterm election since 1946, according to Truist chief strategist Keith Lerner, as quoted on Yahoo Finance.
The average gain during these periods has been 14.4%, while the strongest performance came after the 1954 midterms, when the index surged 34%.
The broader seasonal pattern is also encouraging. Lerner noted that the S&P 500 has gained an average of 6.6% during the fourth quarter of midterm-election years since 1950 and finished higher 84% of the time.
With the S&P 500 roughly flat since June, the market has broadly reflected the historically volatile pattern associated with midterm years. However, seasonal trends typically become more favorable as the fourth quarter progresses.
All these historical data points indicate a potential rally in ETFs like Vanguard 500 Index Fund ETF Shares (VOO - Free Report) and Invesco S&P 500 Equal Weight ETF (RSP - Free Report) .
Strong Corporate Profits Offer Another Cushion
A powerful earnings backdrop is giving investors another reason to look beyond political uncertainty.
The overall setup remains extremely favorable as the Q3 earnings season takes center stage. S&P 500 earnings are expected to increase 24.6% year over year, marking the eighth straight quarter of double-digit earnings growth for the index. Q3 earnings are expected to be above the year-earlier level for 15 of the 16 Zacks sectors, with six sectors expected to enjoy double-digit growth.
Expectations remain robust for the quarters ahead. For 2026 Q4, the expectation is that S&P 500 earnings will grow by 27% from the same period last year on 11.8% higher revenues. WisdomTree U.S. LargeCap ETF (EPS - Free Report) could be a good pick in this case.
Election Results Could Create Different Market Outcomes
The market reaction could ultimately depend less on which party wins and more on the type of political control that emerges, according to Morgan Stanley strategists, as mentioned in the same Yahoo Finance article.
They expect seasonal conditions to become more supportive from October but acknowledge that a stronger-than-expected Democratic showing could trigger a near-term pullback.
Holiday Spending Set for Strong Growth
U.S. holiday retail sales are expected to hit a record $1 trillion-plus during the November-December shopping season, according to Bain & Company. Sales are projected to rise 4.5% year over year, faster than the 3.5% growth seen in 2025. The data puts the ProShares Online Retail ETF (ONLN - Free Report) in focus.
Meanwhile, Mastercard Economics Institute expects U.S. retail sales, excluding autos and gas, to rise 5.5% year over year from Nov. 1 to Dec. 24, marking the strongest holiday growth since 2022. This is another indication that the broader market will remain steady in 2026 (read: Holiday Spending Set for Strong Growth: ETFs in Focus).
Market Dynamics Right After Election
Since 1974, the S&P 500 has delivered an average return of just 1.7% from Aug. 1 through Election Day, per Charles Schwab. But markets normally see a "relief rally" in the months after an election. Since 1974, the S&P 500 has averaged a 5.7% return in the three months immediately following a midterm election, with 11 of the 13 years producing a positive return.
And in the six months following a midterm election, the S&P 500 has averaged a 12.4% return across the same years, with all 13 years showing positive returns, per Charles Schwab.
Earnings May Matter More Than Politics
Ultimately, the market may remain focused on corporate fundamentals rather than election headlines. Strong earnings expectations provide an important cushion, while historical data suggest that the period following midterm elections has generally been favorable for stocks.
That combination could allow equities to look beyond political uncertainty, although elevated bond yields, energy prices and the eventual election outcome remain important risks for investors.