Markets hate uncertainty — and few events create more widespread uncertainty than national election years.
In a recent Market on Close livestream, Senior Market Strategist John Rowland explained a lesser-known but powerful historical pattern: midterm election years tend to be some of the most volatile periods for the S&P 500 Index ($SPX). It’s not due to partisan politics, but rather the result of how pre-election uncertainty affects positioning, capital allocation, and investor psychology.
The data goes back nearly a century, and the message is consistent.
What the Historical Data Shows About Midterm Election Years
Looking back to 1962, the S&P 500 has consistently underperformed in the 12 months leading up to midterm elections. The average return for the index in this period is a drop of 1.1%, compared to a positive return of 11.2% during non-midterm periods.
Additionally, the average negative return is a staggering 18%, including a 22% decline in the 12 months leading up to the 2022 midterms.
This doesn’t mean markets must crash in the new year. There are some positive returns mixed into the dataset, too, and the market never follows a single script.
However, this pattern suggests that as we head into 2026, heightened volatility becomes more likely, rallies are more likely to be capped, and pullbacks tend to be deeper than investors are used to during strong bull cycles.
The 3-Year Market Cycle Most Investors Ignore
John also highlights a broader pattern tied to this behavior — a repeating three-year market cycle.
Historically, markets have often experienced multiple years of strong gains followed by a weaker or corrective year, which frequently aligns with midterm election cycles. These “down” years don’t always produce full-fledged bear markets, but they often lead to mean reversion (in other words, a cooling-off period after strong returns).
Instead of double-digit annual gains, investors may face a stretch where returns flatten into the low single digits or oscillate with higher volatility.
Why This Matters Right Now
What makes this discussion especially relevant is timing.
After an extended period of strong performance, markets are now entering a window where:
- Uncertainty rises
- Policy direction becomes unclear
- Investors reduce risk rather than add it
Even traditionally bullish strategists are acknowledging this shift. FundStrat’s Tom Lee, known for his optimistic outlooks, has publicly suggested the possibility of a 10–15% correction, with risks potentially extending toward 20% on the downside depending on how conditions unfold.
When long-term seasonality, cycle analysis, and sentiment all point in the same direction, it’s worth paying attention — not to panic, but to prepare.
What This Means for Traders and Investors
This pattern isn’t a prediction, though it can serve as a risk framework for the months ahead.
For traders, it suggests:
- Rallies may become more fragile
- Volatility can create both opportunity and “fakeout” whipsaws
- Risk management matters more than aggression
For investors, it’s a reminder that:
- Pullbacks are normal, especially during election cycles
- Periods of weakness can become long-term buying opportunities
- Patience often outperforms prediction
Understanding where we are in the cycle helps investors respond thoughtfully instead of emotionally.
The Bigger Picture
Markets don’t move in straight lines, and history shows they don’t ignore election cycles either.
Midterm years tend to introduce uncertainty, volatility, and even corrections that can catch complacent investors off guard. But for those who respect the data, these periods often create some of the best opportunities for the years that follow.
In fact, the S&P tends to outperform in the 12 months after a midterm, racking up an average return of 16.3%. This means that now is an ideal time to think about long-term positioning.
Watch this clip on Midterm Elections:
- Stream the full Market on Close episode
- Explore SPX seasonality on Barchart
On the date of publication, Barchart Insights did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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