Stocks Climb Higher During Election Months. But Does It Matter Who Wins?

I recently published a column on monthly stock returns showing that November has historically been the best-performing month of the year. November is also an election month, as Americans up to their eyeballs in political ads can attest.

Is there a link? Has market enthusiasm for election results, or perhaps relief that elections are finally over, contributed to November’s historical strength?

And how have markets behaved under different political configurations? The Democrats are expected to win a majority of seats in the House of Representatives in the November 2025 midterm elections and could also take control of the Senate. Is divided government as positive for stock returns as conventional wisdom holds?

We can answer these questions using data from the Center for Research in Security Prices, recently acquired by Morningstar. My colleague Michael Wang from Morningstar’s Analytics team and I looked at 100 years of US stock returns to shed light on the role of federal elections and political leadership more generally. We present our research acknowledging that politics are just one of many variables affecting markets. Also, note that we have steered clear of the colors red and blue in our exhibits to avoid associations with political parties!

The Postelection Pop Is Real

First, the data shows that elections do act as market catalysts. Going back to 1926, federal election-year Novembers have produced higher US stock market returns than non-election-year Novembers. That’s measured through a market-capitalization-weighted composite of all US stocks and applies to both average and median November performance.

Postelection pops could result from ending uncertainty. Questions around electoral outcomes and their implications can unsettle investors. Getting past an election allows markets to move on.

Consider the two worst election-year Novembers for stocks: 2000 and 1948. It took weeks for Bush v. Gore to resolve at the turn of the millennium. (Remember those “hanging chads”?) In 1948, the infamous “Dewey Defeats Truman” headline illustrates an unexpected result that rattled markets.

Other surprises have prompted rallies. Donald J. Trump was responsible for a big one in 2016, when he beat Hillary Rodham Clinton. The promise of tax cuts, deregulation, and pro-growth spending enthused the market.

As far as midterm election Novembers go, the biggest pops came in 1954 and 1962. In the former year, President Dwight D. Eisenhower’s Republicans lost both chambers of Congress. In the latter case, John F. Kennedy’s Democrats retained congressional control.

Sometimes markets have been energized by the prospect of change, while in other cases, continuity has been celebrated. Of the 25 midterm election Novembers over the past 100 years, only four have seen stock market losses. The last down midterm November was in 1994.

What’s Better for Markets: Unified or Divided Government?

Gridlock is good, so the thinking goes. There’s a common perception that divided government prevents policymaking that stymies business activity. Strong stock market performance during the Reagan years, when Republicans controlled the presidency with a Democratic majority in Congress, bolstered this theory.

But the market has outperformed under unified governments going back to 1926. In some periods, including since the start of 2025, Republican control has coincided with strong stock market returns. The first two years of unified Democratic control under Barack Obama also saw big gains.

A pattern has emerged in recent decades, whereby the president’s party usually loses control of Congress. For reasons best left to political scientists, every president since Bill Clinton has ceded at least one house of Congress in the midterms. It happened in 1994, 2006, 2010, 2018, and 2022.

Wang compared stock market performance for the unified versus divided portions of each of these administrations. In the case of Clinton, Trump 1, and Biden, returns improved after the president’s party lost control of Congress. In the case of George W. Bush and Obama, returns were better when the president’s party also controlled Congress.

At this point, I can hear readers screaming: “But that was during X!” “Wasn’t that at the time of Y?” And they’d be absolutely right. Elections don’t happen in a vacuum. For example, the November 1994 stock market drop was less about the midterm election and more about bond market turmoil and interest rate hikes. The bear markets of the early 1930s and early 2000s owed to the Great Depression and the bursting of the internet bubble, respectively, as opposed to government composition. Correlation does not equal causation.

How Should I Position My Portfolio for the November 2026 Midterm Election?

Market analysts are busy handicapping the election and speculating over its implications. What changes will come to taxing and spending, regulation, and tariffs? How will results affect stocks and bonds, the dollar and cryptocurrencies?

Before adjusting portfolios, consider the “Trump trades” as cautionary tales. In the aftermath of the November 2024 elections, US stocks, especially small caps, rallied, as did the US dollar and bitcoin. European shares sank. Then in 2025, those trades reversed as expectations reset. Europe outperformed, while the dollar, bitcoin, and US small caps all lagged.

One Trump trade did endure: rising bond yields. Anticipation of higher deficits and elevated inflation proved prescient. How the elections might tip the balance between an AI-enthused stock market and an inflation-fearing bond market remains an important, open question. One thing’s for sure: AI and inflation are not only top of mind for investors, but also for American voters. Another prediction is that uncertainty around electoral outcomes could unsettle markets.