History says the year after a midterm is the S&P 500’s strongest of the presidential cycle, but several forces lurking in today’s market could finally snap that unbeaten streak.
Market Pulse desk. Editor: AJ Tiarsmith, PhD.
Voters go to the polls on Nov. 3 for President Trump’s second midterm election as president. With a week to go, prediction markets see Democrats as favored to sweep Congress. For stock investors, the more useful history covers what has typically happened after the votes are counted.
According to Opening Bell Daily, since 1950, the year after a midterm (year three of the four-year presidential cycle) has been the S&P 500’s strongest year by a wide margin. The index has averaged a 17.2% calendar-year price gain in year three. Opening Bell Daily found that year one averaged 8.4%, midterm years averaged 4.6% and year four, the election year, averaged 8.1%.
The losses in year three have also been small. The S&P 500 fell in only two pre-election years, 2011 and 2015, each by less than 1%. Opening Bell Daily names 1995 as the best year three, up 34.1%, and puts the 2023 gain at 24.2%.
How a Typical Year Three Stacks Up Against Trump’s Second Term
For Trump’s years, we used the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) as a stand-in for the S&P 500, measuring calendar-year price return from one year-end close to the next. That matches the price-gain basis behind the averages above.
In 2025, his best full year of this term so far, SPY rose 16.35%. A typical year three would come in slightly ahead of that result. This year is still in progress: SPY is up 12.83% year to date as of noon Oct. 27, and two months remain. Against 2028, his final year, the comparison rests on the historical pattern alone, and the year-three average sits far higher than the year-four average.
His first term followed the script. In his first-term year three, SPY gained 28.79%, ahead of the 16.16% gain in 2020. His first midterm offers a lesson in patience: the S&P 500 fell 9.0% from Election Day to Dec. 31, 2018, yet stood 11.7% higher a year after that vote.
A Second Yardstick: The 12 Months After the Vote
A different window, starting on Election Day rather than Jan. 1, tells a similar story. Opening Bell Daily found the S&P 500 rose in the 12 months after all 19 midterm elections since 1950. The average gain is at 15.1% and the median at 14.5%. Opening Bell Daily lists the best stretch at 33.2% after 1954 and the worst at 1.1% after 1986.
Truist Financial (NYSE:TFC | TFC Price Prediction) chief strategist Keith Lerner, in research cited by Yahoo Finance, found every midterm year since 1946 was followed by a positive one-year return averaging 14.4%, with the best at 34% in 1954, matching OBD. The near term has tended positive: Opening Bell Daily reports the fourth quarter of midterm years has averaged a 6.6% gain, finishing higher in 16 of 19 cases.
Why 2027 Could Break the Pattern
Nineteen midterms make a small sample, and the outcomes vary widely. Opening Bell Daily notes that only 11 of 19 midterm years since 1950 finished higher. They also found midterm years averaged a 17.5% peak-to-trough drop, compared with 11.2% to 13.3% in other years. This year’s deepest decline through Oct. 16 was 9.1%.
Morgan Stanley (NYSE:MS) strategists said, “The type of majority matters more than which party wins from an equity market perspective.” The background also looks tougher than average. The 10-year Treasury yield stood at 5.00% on Oct. 23, and University of Michigan consumer sentiment fell to 48.1 in September. The VIX closed at 18.39 on Oct. 26, within its normal range. Stocks have also already posted double-digit gains this year.
What Ordinary Investors Can Take From the Cycle
The presidential cycle is an average of past outcomes, and it describes correlation rather than cause. Earnings, rates and valuations drive returns, with elections and presidents playing a smaller role. If the pattern holds, 2027 would be the best market year of Trump’s second term. If it fails, investors who rearranged portfolios around one election would carry the cost.
The sounder approach is a long-term plan that can absorb a rough patch around the vote. In the coming weeks, keep an eye on the Nov. 3 results, the size and shape of any new majority, and whether the 10-year yield holds near 5%.
Contact [email protected] for any questions or corrections.
AJ spent 10 years writing about financial markets at The Motley Fool. His coverage centers on technology stocks and the broader macroeconomic trends, from interest rates to geopolitics, that shape where markets are headed next. AJ is drawn to the stories where big-picture economics and individual companies collide.
