>> October 2026: Here is the latest edition of our Market Insights
In November, Americans will vote in the midterm congressional elections, which could fundamentally alter the balance of power in Washington and, with it, shape the economic policy environment for the next two years.
The stock market, however, does not seem to be waiting for greater political clarity. Markets have already performed strongly so far this year. This is noteworthy, because midterm years have often been characterised by elevated uncertainty and comparatively weak returns. Since 1990, the S&P 500 has generated an average return of only around 3% in midterm years. Average performance in the following year, by contrast, exceeded 20%.
This predicts neither the election result nor the future direction of the stock market. It does, however, illustrate something else: markets attempt to anticipate political and economic changes in advance. Benjamin Graham, the legendary investor known as the “father of value investing”, once described the stock market as a voting machine in the short term and a weighing machine in the long-term. This idea is particularly relevant in the run-up to elections.
Historically, markets in midterm years have often begun to recover several weeks before election day, once the political scenarios became clearer. In other words, markets start trading expectations for the period after the election before the votes have even been counted.
In 2026, the market appears to be anticipating this pattern even earlier. Despite geopolitical tensions, persistent inflation and renewed interest rate increases, US equities have remained robust for months. Both the Fed and the ECB raised interest rates in September. Nevertheless, equity markets have held firm and reached new highs. Corporate earnings and substantial investment in artificial intelligence and infrastructure currently appear to matter more than political and monetary policy uncertainties.
Somewhat paradoxically, a difficult political constellation could even prove attractive from a market perspective. If neither party fully controls Washington after the midterms, political gridlock could follow. At the same time, however, the likelihood of major legislative packages, far-reaching tax changes and regulatory intervention would decline. Gridlock may therefore occasionally be the more favourable outcome for markets. What is regarded as political stalemate in Washington can be interpreted as stability on Wall Street.
The election outcome may remain relevant for individual sectors. For the broader market, however, other factors matter more over the longer term: corporate earnings, interest rates, productivity and valuations. This is the key message for investors. The question is not whether the coming months will bring further political or economic surprises – they almost certainly will. What matters instead is whether those surprises will materially change the fundamental development of companies and the economy over the longer term.
So far, there is little to suggest that they will. Earnings and investment remain robust, while markets have absorbed higher interest rates surprisingly well. This is no guarantee of further gains, but it does show that political headlines alone rarely provide a sound investment strategy.
Voters go to the polls in November. The markets appear to have started voting long ago.
Giorgio Saraco,
Partner, Head Asset Management
