Will the midterm elections crash the US stock market? 75 years of history give a surprising answer.

Although the US stock market experienced several historic bouts of turbulence during Trump's presidency, it is undeniable that the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite all delivered extraordinary returns under Trump. The Trump bull market has been driven by multiple factors: the evolution of artificial intelligence (AI), better-than-expected corporate earnings, and a record wave of stock buybacks fueled by the Tax Cuts and Jobs Act which permanently lowered the top corporate marginal income tax rate from 35% to 21%. But history shows that bull markets do not last forever, and catalysts are always lurking nearby, ready to trip up the stock market. Currently, with less than eight weeks to go before the midterm elections, one of Wall Street's biggest uncertainties is looming. On November 3, American voters will head to the polls or mail in their ballots for the 2026 midterm elections. Although Trump's term runs until January 20, 2029, the composition of both chambers by early January 2027 remains highly uncertain. Could a power reshuffle in Congress cause the stock market to plunge? Looking back at 75 years of history, the answer is surprising and ultimately leans optimistic. A congressional reshuffle is expected in November Currently, Republicans control a unified government. In addition to holding the White House, they hold 53 of the Senate's 100 seats and 218 of the House's 435 seats. This "unified government" makes passing major legislation much easier. Both of Trump's non-consecutive terms featured unified government in their first two years. That is precisely why he was able to sign two massive tax-and-spending bills. The aforementioned Tax Cuts and Jobs Act (December 2017) permanently lowered the top corporate marginal income tax rate, while the "One Big Beautiful Bill Act" (July 2025) made the individual tax brackets of the Tax Cuts and Jobs Act permanent. If Republicans lose control of one or both chambers of Congress, passing major legislation will become far more difficult even impossible. It would also complicate debt-ceiling negotiations, potentially leading to a government shutdown. Although previous government shutdowns did not cause the stock market to plunge, they heightened short-term uncertainty. According to prediction markets, Democrats have a strong probability of gaining seats and retaking one or both chambers of Congress on November 3. Polymarket odds on September 13 showed a 53% probability of Democrats winning both chambers, and a 34% probability of Democrats taking the House while Republicans hold the Senate. Either way, the odds strongly favor a congressional reshuffle 52 days from now. Moreover, historical patterns show that the incumbent president's party almost always loses seats in midterm elections. Of the previous 23 midterm elections, the party holding the White House lost seats 20 times. The case for a stock market plunge is simple: a restructuring of congressional power could lead to partisan policy gridlock. But 75 years of history tell a different story. Midterms bring heightened volatility, but the sixth year of a second term hides a major turning point During Trump's presidency, volatility is nothing new. The five-week COVID-19 crash from February to March 2020, and the tariff turmoil in early April 2025, both caused the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite to post some of the largest short-term percentage swings in history. Statistically, midterm election years are known for heightened uncertainty and deeper stock market drawdowns. Last November, Ryan Detrick, chief market strategist at Carson Group, posted a set of data on X examining peak-to-trough declines in the benchmark S&P 500 during midterm election years. Since 1950, the average pullback within a midterm election year has been 17.5% an extraordinary drawdown relative to the other three years of a president's four-year term. While that may not sound like good news, another post by Detrick on X pointed out that there is a considerable difference in stock market performance between the second and sixth years of a presidency. Looking back 75 years, there have been six presidents (including Trump) elected to full terms twice (Richard Nixon is excluded because he was removed from office in August of his sixth year). While the second year is riskier the S&P 500 fell during the terms of Bill Clinton, George W. Bush, and Donald Trump the sixth year of every two-term president ended higher. Since 1950, in the sixth year of a second-term president, the S&P 500 has risen by an average of nearly 21%. As additional context, as of last Friday's close, the S&P 500 was up 11.85% year to date. If this trend continues in 2026, it is likely attributable to two factors. First, from an investment perspective, political gridlock may be seen as a positive. Although a divided Congress makes debt-ceiling negotiations more uncertain, no major legislation will be passed, which adds a degree of certainty that Wall Street and investors often welcome. Second, the importance of AI infrastructure buildout outweighs the midterm elections. The latter has a greater real impact on households, but the construction of AI data centers, combined with consistently better-than-expected earnings, has laid the foundation for one of the strongest bull markets in history. While a stock market plunge this year remains possible, history suggests the midterm elections are unlikely to be the trigger.