Positioning your portfolio with the outcome of electoral politics in mind is a bad idea. So if you're planning on messing with your allocations ahead of November's midterm elections, you might want to think again.
For more than two decades, Barry Ritholtz, co-founder of Ritholtz Wealth Management, has urged folks to keep politics out of their investing process. His latest book, How Not to Invest, even has a chapter titled "Why Politics and Investing Don't Mix." Ritholtz stresses that politics is fundamentally emotional, while "investing is done best when it's logical and rational."
Besides, predictions about which sectors are set to outperform or lag are too often just plain wrong. Recall that ahead of President Donald Trump's first term, investors were advised to load up on Big Oil and small-cap stocks (wrong and wrong) and avoid Big Tech and renewable energy names (wrong and wrong, again).
Most importantly, stocks tend to do quite well at this point in the cycle, notes Jeffrey Buchbinder, chief equity strategist at LPL Financial.
"One of the strongest 12-month seasonal periods of the four-year presidential cycle for stocks is fast approaching," he writes. "The year following midterm elections has generated the strongest average annual S&P 500 return at 17.2%, significantly above returns during first-year, election-year and midterm-year periods."
And how. The S&P 500 has risen during the 12 months following midterm elections 18 straight times dating back to 1954, according to LPL.
"History suggests investors may be better served focusing on market behavior rather than political predictions," Buchbinder adds.
Ryan Detrick, chief market strategist at Carson Group, wholeheartedly concurs, noting that the best part of the four-year presidential cycle is now.
"The fourth quarter of a midterm year is historically the best quarter of the year, up more than 80% of the time and up 4.2% on average, twice the next best quarter," Detrick says.
Why gridlock could be good for equities
True, Democrats could flip the House of Representatives, but Detrick notes that gridlock can be good. A divided Congress is often positive for the stock market. After all, the status quo can be preferable to the uncertainty of sweeping legislative changes.
Even if you do want to handicap the election outcome, the polls suggest the market could be poised for a period of outperformance, says Monica Guerra, head of policy and geopolitical strategy at Morgan Stanley Wealth Management.
"Under a Republican president and split Congress, the S&P 500 has historically gained about 23% in the post-midterm year, compared with 12% across all midterm outcomes," she writes.
Who holds power in Washington, D.C., matters, of course, but not nearly as much as the outlook for corporate earnings, interest rates and the macroeconomic environment, experts say.
"Regarding political party control of Congress, other issues matter more to the market's medium- and long-term performance, including Fed policy and innovation," writes Kelly Bogdanova, portfolio analyst at RBC Wealth Management. "Despite the increasing likelihood that party control could shift partially or fully in the next Congress, RBC Capital Markets equity analysts see little overall impact on S&P 500 sectors."
How investors should prepare
The bottom line: Since 1945, U.S. stocks have climbed under both parties and across nearly every configuration of the legislative and executive branches, says Anthony Saglimbene, chief market strategist at Ameriprise Financial.
"Through it all, the long-term direction of the stock market has generally been higher," he writes. "Midterm election results have typically had a limited impact on the long-term performance of the broader market."
No matter which party is in control, staying focused on a long-term plan and maintaining a well-diversified portfolio has generally been the best approach, Saglimbene adds.
To reiterate the point, we'll give the last word to Michael Townsend, managing director of legislative and regulatory affairs at Charles Schwab.
"Given the political atmosphere in the United States right now, the 2026 midterm elections are likely to be particularly emotional," he says. "Investors should remember to keep those emotions in check when making investment decisions."