History says there's a good chance we haven't seen the stock-market lows yet

By Brett Arends

Look out! In half of the midterm election years since 1950, the S&P 500 fell by about 20% or even more, Lansing Street Advisors found.

The U.S. stock market has suffered a significant correction in every single midterm election year since 1950, warns Lansing Street Advisors.

And most of them were considerably worse than the 9% fall we saw in the past couple of months, they add.

So if the past forms any kind of pattern, it's another reason to at least be cautious about markets at the moment. Maybe it isn't a reason to sell, especially if you're a long-term investor, but it may be another reason to check how much risk you're taking in your portfolio - and how much you really want to take.

In half of the midterm election years since 1950, the S&P 500 fell by about 20% or even more, the family office of Lansing Street Advisors said in its first-quarter letter. The average decline was 17.5%. On just five occasions was the decline less than the one we saw over the winter.

Add the "well-documented pattern" of markets often falling 10% or more during the appointment of a new Fed chair, "and 2026 is delivering both events in a single year," they noted.

Alicia Levine, head of investment strategy at BNY Wealth, went even further. She said the record of stock-market turmoil during midterm election years goes all the way back to 1938. "Typically, midterm election years tend to be quite volatile, with average drawdowns of 15+%," she told MarketWatch. "We've only had a 9% drawdown in 2026, so the question is whether markets have a further round of risk off."

That's more circumspect than her comments Tuesday morning on Bloomberg radio, when she said, "It's a midterm election year: Things get very volatile. Since 1938 the pattern has never been broken. As a historian I'd have to say, if we could just get away with a 7%-9% drawdown I'll consider myself lucky."

Levine added that the big worry right now may be the surge in energy and other commodity costs, which so far haven't been factored fully into Wall Street's corporate earnings forecasts. "I would think that you really have to pay attention to input costs here," she told Bloomberg Surveillance hosts Tom Keene and Paul Sweeney. "Right now, expectations are for the highest margins ever. I'm not sure that's realistic."

But the let record show that Levine, like most of Wall Street, remains headline bullish and thinks the S&P 500 will rise from just under 7,000 today to 7,600 by year's end.

Levine's comments about earnings expectations came shortly before the S&P 500 SPX charged to within a whisker of a new record high Tuesday. This is happening even as the market has now all but given up on the Fed cutting interest rates this year. According to data from CME, the futures market now thinks there's a two-thirds probability there will be no more Fed cuts this year.

As if this wasn't ominous enough, the latest BofA Securities fund-manager's survey shows that Wall Street is, once again, experiencing severe cognitive dissonance: It is simultaneously worried about the market, but afraid to sell. Investors are "bearish and long," reported BofA strategist Michael Hartnett and his team. They pointed out that big institutional investors have slashed their expectations for the global economy, and raised their fears about inflation. They have cut some of their riskier bets, such as in financials and in consumer stocks, and they have raised their holdings in cash, meaning Treasury bills and similar.

Yet despite this they remain overinvested in stocks. And by far their favorite investment right now is in emerging-market stocks, historically a very volatile and high-risk class. And by far their least-favorite investment is in boring, "safe" bonds. If this is what capitulation looks like, it would be a first.

-Brett Arends

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