Midterms, Rate Hikes and Your Portfolio: Keeping Perspective Before November 3
On November 3, voters will decide control of Congress. The weeks leading up to the vote have been anything but quiet. A hotter-than-expected inflation report, higher energy prices and a pullback in technology shares have made for a choppy October.¹ The Federal Reserve also raised interest rates in September for the first time in three years,² and its next policy meeting is scheduled for October 27–28.³
It is a natural moment to ask whether a portfolio should change before Election Day. Our view: not because of the election. Below is what the historical record shows, where it falls short, and what we believe deserves your attention instead.
Midterm years have tended to be the bumpy ones
The second year of a presidential term has historically been one of the more uneven stretches of the four-year cycle. Since 1931, the S&P 500 has averaged a price return of about 4.7% in midterm years, compared with roughly 9.5% in all other years.⁴ Volatility has also tended to run higher, often clustering in the weeks just before the vote, when uncertainty about taxes, spending and regulation is at its peak.⁴
Research from Fidelity puts the average peak-to-trough decline in midterm years since 1961 at about 19%. This year's deepest decline through mid-August, roughly 9% in March, was milder than that historical average.⁵ Periods of discomfort have been a normal feature of midterm years, not necessarily a signal that something has broken.
The year after has historically been stronger
What often surprises investors is what came next. A U.S. Bank review of 31 midterm elections from 1900 through 2025 found that U.S. stocks averaged a 12.4% return in the 12 months after the election, compared with 2.9% in the 12 months before.⁶ LPL Research notes that since 1970, the S&P 500 has averaged a 14.1% return in the six months following a midterm election.⁴
A common explanation has little to do with which party wins. Once results are known, uncertainty tends to narrow, and investors may return their attention to earnings, economic growth and interest rates.
This pattern is not a promise, and stocks have not risen after every midterm. The same U.S. Bank review found that the weakest results in 11 of the 31 election periods studied coincided with forces unrelated to the vote, including inflation shocks, rising interest rates, war and the Great Depression.⁶ The 2022 midterm year is a recent example, when market weakness was driven largely by inflation and rising rates rather than by the election itself.⁶
Who wins has mattered less than many expect
It can be tempting to position a portfolio around an expected election outcome. History suggests that approach has rarely been rewarded. U.S. Bank compared S&P 500 returns under one-party and divided government since 1948 and found that the difference was not statistically significant.⁶
LPL Research has noted that investing on an election outcome requires being right three times: about the result, about the policy that follows, and about how markets respond to that policy.⁴ Being right on the first does not ensure being right on the other two. We prefer to build portfolios around factors that can be measured and planned for.
This year has a twist: the Fed is raising rates
What sets 2026 apart from a typical midterm year is that the Fed began a new rate-hiking cycle in September.² LPL Research reviewed how S&P 500 sectors performed after the start of past hiking cycles:²
- Historically stronger: energy, technology and utilities, each averaging double-digit gains in the 12 months after an initial rate hike.
- Historically weaker: financials, which gained little on average in the first six months, and consumer discretionary, as higher rates and energy costs weighed on household spending.
Two cautions apply. First, the early weeks of this cycle did not follow the historical pattern; energy, for example, declined in the two weeks after the September hike while technology rose.² Second, sector history describes the past and does not indicate how any sector will perform in the future. For most investors, the more useful takeaway is that a diversified portfolio is designed to be resilient across a range of interest-rate and policy environments rather than depending on any single one.
What we believe deserves attention instead
Rather than reacting to polls or daily headlines, we suggest a short, disciplined review:
- Revisit goals and time horizon. A long-term plan should not hinge on a two-week news cycle.
- Rebalance if allocations have drifted. After strong gains earlier this year,⁵ equity weightings may sit above their intended targets.
- Confirm liquidity for near-term needs. Knowing that upcoming withdrawals and obligations are covered can make volatility easier to manage.
- Consider tax-aware opportunities. Year-end volatility may create room for tax-loss harvesting or measured rebalancing, coordinated with your tax professional.
- Keep business and estate plans current. Business owners and families may wish to plan for a range of possible policy outcomes rather than a single expected one.
The bottom line
Elections shape headlines, and sometimes policy. History suggests they have rarely been the primary driver of long-term investment results; earnings, inflation, interest rates and a well-constructed plan have mattered more. Volatility around an election can feel unsettling, but for disciplined investors it has more often been a time to review than a time to react.
If recent weeks have raised questions about your own financial plan, we welcome the opportunity to talk.
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Sources
- Tradingkey, "US Stock Weekly Report," October 19, 2026. Link
- LPL Research, Jeff Buchbinder, "S&P Equity Sector Performance After Initial Fed Rate Hikes," September 29, 2026. Sector data covers six hiking cycles since 1994; source data LPL Research and Bloomberg as of September 28, 2026. Link
- Board of Governors of the Federal Reserve System, "Meeting calendars and information," last updated October 7, 2026. Link
- LPL Research, Marc Zabicki, "Investor Preparation for the U.S. Midterm Elections," LPL Street View, October 1, 2026. Link
- Fidelity Investments, "The surprising truth about midterms and stocks," Fidelity Viewpoints, August 12, 2026. Link
- U.S. Bank, "How midterm elections affect the stock market," September 28, 2026. Based on U.S. Bank Asset Management Group Research and Bloomberg data; Dow Jones Industrial Average 1900–1928 and S&P 500 1929–2025. Link
Important disclosures
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments may be appropriate for you, consult your financial professional prior to investing.
All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Index performance does not reflect fees, expenses or sales charges. References to markets and sectors are generally to the corresponding index.
Investing involves risks, including possible loss of principal. No strategy assures success or protects against loss. Diversification and asset allocation do not ensure a profit or protect against loss. Rebalancing may result in tax consequences.
Any economic forecasts set forth may not develop as predicted and are subject to change. The information has been gathered from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.
The Standard & Poor's 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you consult with a qualified tax or legal professional.
The third-party organizations referenced are not affiliated with Buckhead Wealth Management or LPL Financial.
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