International | 10:45 AM
Don't be spooked by Midterm elections, say strategists at MFS Investment Management. History proves them right.
By Michael Dembro, Lead Strategist – Market & Insights Group, MFS Investment Management & Kevin Mullen, Senior Strategist – Market & Insights Group, MFS Investment Management
As the US heads to the polls on 3 November, history suggests investors are better served by discipline than by political forecasts.
Every two years, the run-up to the US midterm elections brings a familiar wave of speculation about taxes, regulation and the direction of markets. Headlines focus on who will control Congress.
For long-term investors, however, the more useful question is what history tells us about how markets behave around these votes – and the evidence suggests that political outcomes matter far less than many assume.
No single outcome has had a monopoly on returns
Across more than nine decades of data (1933–2025), the S&P 500 has delivered positive average annual returns under every combination of White House and congressional control, ranging from 8.6% to 19.2%. Whether Congress has been unified or divided, markets have continued to be driven primarily by earnings and impacted by interest rates and economic growth rather than by the make-up of Capitol Hill.
The uncertainty discount has tended to fade
Markets typically dislike uncertainty more than any particular policy agenda. In the months before a midterm, investors weigh a range of possible scenarios, which can dampen sentiment.
Once the result is known, that uncertainty has tended to recede.
Historically, this has been reflected in a notably strong period after the vote: since 1938, the S&P 500 has posted positive returns in the 12 months following 21 of the last 22 midterm elections, with an average return of 19.4%.
History in practice
As the examples below illustrate, every change in control of the House since 1994 has been followed by an S&P 500 that ended the following year higher, regardless of which party won.
Even the weakest years point to forces beyond the ballot box: the 2.1% return in 2011 reflected the eurozone debt crisis and the US credit downgrade, while the only post-midterm decline in the series, 1939 (–0.4%), came as the Second World War broke out.
Policy matters – but through fundamentals
That is not to say elections are irrelevant. Shifts in congressional control can influence fiscal spending, tax, trade and regulation, with implications for individual sectors, government borrowing and bond yields.
Yet these effects have tended to play out gradually, through company earnings and the wider economy, rather than as immediate market-wide moves.
This is where a research-driven, active approach can add value: assessing how policy changes filter through to individual companies’ cash flows and valuations, rather than trading on the headline result.
Discipline over forecasts
We feel positioning a portfolio around an election means making two correct calls: the result itself, and how markets will react to it. History shows how difficult that can be.
Rather than attempting to time the vote, we believe investors are better served by using the midterms as an opportunity to confirm that portfolios remain well diversified and aligned with their long-term goals.
Elections come and go; sound investment principles endure.
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