Capitol gains

As we approach the US midterm elections, investors are once again wondering whether all the red and blue will be bad news for their green.

Historically, stocks have actually taken election season largely in stride. Since 1938, the S&P 500 has risen in the 12 months after a midterm election 95% of the time, according to Fidelity, with average gains of roughly 14% in the following year.

Even October, despite its reputation for hosting some of the market’s scariest crashes, tends to lose its bite during midterm years. Overall, October ranks as the seventh-best month for stocks since 1950. But during midterm election years, it vaults to the top of the leaderboard, with the S&P 500 gaining an average of 3% and finishing higher nearly 74% of the time, according to Carson Group. November has historically been almost as strong, averaging a 2.7% gain.

Of course, patterns aren’t promises: During President Trump’s first midterm year in 2018, the S&P 500 dropped nearly 7% in October, snapping what had otherwise been a positive streak across the eight most recent midterm-year Octobers.

Pick your poison

The broader market has evidently weathered midterms pretty well, but winners and losers beneath the surface of the index can still be reshuffled by who controls Congress. Luckily for us, JPMorgan Chase has done some of the election-night homework, laying out three possible outcomes and how investors might play each one.

• Gridlock: If Congress is split, major policy changes become harder to pass, which JPMorgan says could leave much of the current market backdrop intact. The bank highlights names like Alphabet, ExxonMobil, and Home Depot as potential winners. Meanwhile, Jefferies argues that a divided government could be especially friendly to Big Tech by making major new AI regulation less likely, favoring established players like Amazon, Microsoft, and Oracle.
• A Democratic flip: A Congress controlled by Democrats could be more supportive of clean energy and healthcare while bringing more scrutiny to AI infrastructure, data centers, and other parts of the tech buildout. According to JPMorgan, potential beneficiaries include Salesforce, Carvana, NextEra Energy, Xcel Energy, and CECO Environmental.
• A Republican hold: If Republicans keep both chambers, JPMorgan projects a friendlier backdrop for AI infrastructure, energy, nuclear power, financials, and defense through deregulation and policy continuity. The bank sees upside for names like Bloom Energy, UnitedHealth, Lockheed Martin, CoreWeave, and Bank of America.

Three outcomes, three potential paths forward. But whatever happens, if the market goes sideways after Election Day, at least we’ll finally have something besides the Fed to blame.—SY