Putting 2026 Into Historical Context
Every four years, U.S. markets pass through a phase that gets less attention than the presidential election itself, but has a more consistent statistical fingerprint: the midterm year. As this year’s election nears, it’s useful to examine what a century of data actually shows and what it doesn’t.
The weakest link in a four-year chain
Let’s cut to the chase. Going back to 1932, the S&P 500 has averaged a gain of roughly 5.8% during midterm years. That’s almost identical to the return on Long-Term U.S. Treasuries, and the weakest of the four years in the presidential cycle.
When we look at the period since WWII, we see an even weaker performance of midterm years, averaging closer to 3.8%, versus a 10.9% average for the other three years combined. Year Two of a presidential term is, on average, the softest year for U.S. equities, though Year Four, the election year itself, isn’t far ahead of it. The real standout is Year Three, the year before a presidential election, which has historically outpaced all three of the others by a wide margin.
The U.S. presidential cycle is one of the most widely studied patterns in market history, tracked by firms ranging from CFRA to Morgan Stanley to the Stock Trader’s Almanac, whose data set stretches back to 1896. It also comes with real texture, not just an annual number. An RBC Capital Markets study tracked, across 23 midterm election cycles since 1934, the S&P 500’s lowest point within roughly a year of each midterm election—the trough of that cycle’s pullback. In 22 of the 23 cycles measured, that low was reached before the election itself. Only in 2018 did the low come afterward. Measured from whatever peak preceded it in the prior 12 months down to that low, the average decline was 20.6%. Midterm years don’t just deliver softer full-year returns—the substantial majority of cycles studied have come with a real drawdown along the way, and a sizable one.
The Cyclical Payoff
Here’s where the data gets genuinely compelling, and where a purely gloomy read of “midterm years are weak” falls apart. The twelve months following a midterm election have historically been the strongest stretches in the entire market cycle. Since 1932, the S&P 500 has averaged a gain of roughly 16.3% in the year after a midterm, though that average hides real variation, ranging from a decline of 5.2% at the low end to a gain of 41.4% at the high end. One separate analysis of the period since 1962 found a related pattern: no negative October-to-October stretch following a midterm election, not once.
This isn’t just a pattern from decades past. It’s already playing out in real time, in this very midterm year. The S&P 500 fell roughly 9% from its highs earlier in 2026, with the Nasdaq and Dow both slipping into official correction territory, a real, sizable drawdown, right on schedule. By early July, the index had rallied hard off that low, climbing nearly 19% from the March trough, echoing the recovery pattern the historical data describes.
A second pullback has since taken shape, driven by rising U.S.-Iran tensions pushing oil prices higher, along with disappointing earnings from Alphabet and Tesla. As of early August, the S&P 500 had given back several percent from its highs, though both the S&P and the Dow remain above their long-term trend lines—the same technical marker that has historically distinguished a normal, temporary correction from the start of something worse. It’s a live example of the exact rhythm this data describes of real volatility, arriving on a recognizable schedule, without yet breaking the broader pattern underneath it.
Put the two halves together, and a real shape emerges: elevated volatility and a likely pullback sometime during the year itself, hopefully followed by one of the most reliably strong periods markets have to offer. The uncertainty isn’t a bug in the pattern. Recent research suggests it may be a meaningful part of the mechanism. Markets distrust ambiguity and tend to rally hard once an election actually resolves it, regardless of the outcome.
Honest Answer: Nobody Really Knows
A few explanations get offered regularly. Midterm years often fall in the maturing middle of a presidential term, when policy direction is still unsettled and legislative gridlock is common, both conditions that markets generally dislike. Once the election passes, uncertainty resolves one way or another, and markets have historically preferred a known outcome, even an unwelcome one, to an unresolved question. Others point to economic cycle timing rather than politics at all, noting that midterm-year weakness has shown up regardless of which party held power or how the election ultimately went. As with most calendar-based market patterns, the honest position is that the correlation is well documented and the causation is genuinely uncertain.
None of this is a forecast. Average returns hide enormous variation. The best twelve-month post-midterm stretch on record gained over 40%, and the weakest was a modest decline of 5.2%. 2026 will likely be shaped far more by the Fed, corporate earnings, and the broader economic backdrop than by which year this happens to be in the presidential cycle. But the historical shape is worth knowing, if only because it argues against two equally unhelpful instincts: panicking at midterm-year volatility as though it’s uniquely dangerous, and assuming any single data point about this year predicts the next twelve months.
The pattern that actually holds up isn’t “midterm years are bad.” It’s “midterm years are uncertain, markets dislike unresolved uncertainty more than they dislike bad news, and that discomfort has historically been temporary.” That’s a very different and considerably more useful way to understand this year’s volatility than the headlines are likely to offer.
