After the Blue Wave: What History Says About Markets After Midterms

Democrats won. Markets wobbled overnight, then rallied hard. If the last 48 hours have you refreshing your portfolio more than usual, history offers some welcome perspective, and a few smart moves worth making before the year closes.

The first 48 hours: a familiar kind of turbulence

As results confirmed a Democratic “blue wave” in the 2026 midterms, stock futures sold off overnight before reversing. On Wednesday, November 4, the S&P 500 closed up 1.58% and the Dow gained roughly 1,570 points (3%), its best day since April 2025, as investors weighed the prospect of divided government. The 10-year Treasury yield eased to about 4.88%.

This kind of reaction is normal. Markets dislike uncertainty, and an election is a concentrated dose of it. What matters for long-term investors is what tends to happen next.

What history says: 19 for 19

S&P 500 returns one year after each midterm from 1950 to 2022, averaging 15.1% versus 7.4% in all other years

According to Capital Group, the S&P 500 rose in the 12 months after every midterm election from 1950 through 2022. The average one-year price return after midterms was 15.1%, roughly double the 7.4% average in all other years. Once the uncertainty of an election passes, markets have historically been free to refocus on earnings and the economy.

Washington keeps swinging

Ten of the last eleven elections flipped power in Washington; policy agenda items and a $2 trillion deficit alongside a roughly 5% 10-year Treasury yield

Control of Washington changes hands often: 10 of the last 11 elections flipped power in D.C. A new majority brings a new agenda. Items now likely on the table include a healthcare bill, credit card fee caps, a higher minimum wage, tariff repeals, and fewer tax breaks for AI data centers. Further tax cuts and proposed $5,000 household checks now look less likely.

Meanwhile, the federal deficit reached about $2 trillion in fiscal 2026 and is likely to stay large for years. The upside for savers: a 10-year Treasury yield near 5% pays investors meaningfully for taking on that risk.

Drops are normal. So are recoveries.

Average intra-year S&P 500 drop of 14.2%, with 35 of 46 years still ending higher, and recovery times after the 2008, 2020, 2022, and 2025 declines

Per J.P. Morgan Asset Management, the S&P 500 has experienced an average intra-year decline of 14.2% since 1980, yet 35 of those 46 years still ended higher. Even severe declines have recovered: the 57% drop of the 2008 crisis took about 5.5 years to regain its prior high, the 34% COVID drop about six months, the 25% decline during the 2022 rate hikes about two years, and the 19% tariff drop in 2025 about four months.

When markets swing, make volatility work for you

Four moves when markets swing: stay invested or harvest losses, rebalance, hold cash for liquidity, and consider a Roth conversion

See what tax-smart moves you can make before year end

Loss harvesting, Roth conversions, and contributions all have a December 31 deadline.

Review my year-end tax moves

Evaluate the opportunities volatility creates

Price swings can open doors for rebalancing and long-term positioning.

Evaluate my portfolio

Have a plan before the next swing

Election results rarely drive long-term outcomes. Your plan does. If you want a practical starting point, review our year-end tax planning checklist or read why every decade hands investors a reason not to invest. And if the past two days have raised questions, connect with us to schedule a visit.

Sources: Capital Group, “After the 2026 midterms: How will the ‘blue wave’ affect markets?,” Nov. 5, 2026 (S&P 500 price return one year after midterms, 1950 to 2022, via RIMES and S&P Global; election and policy outlook; FY2026 deficit; 10-year yield). J.P. Morgan Asset Management, Guide to the Markets, 2026 (average intra-year decline and annual returns, 1980 to 2025). S&P 500 peak-to-trough declines and recovery to prior high, 2007 to 2025. November 4, 2026 market closes: Business Insider; 10-year yield: J.P. Morgan Asset Management Daily Guide, Nov. 5, 2026. Roth example is hypothetical; conversions are taxable income, so consult a tax professional. Indices are unmanaged and not available for direct investment. Past performance does not guarantee future results. General education, not personalized advice. Header photo: Martin Falbisoner, Wikimedia Commons, CC BY-SA 3.0.

Frequently asked questions

How has the stock market performed after midterm elections?

According to Capital Group, the S&P 500 posted a positive price return in the 12 months after every midterm election from 1950 through 2022, 19 for 19, averaging 15.1% versus 7.4% in all other years. Past performance does not guarantee future results.

Why are markets volatile right after an election?

Elections reset expectations about policy, including taxes, tariffs, spending, and regulation. Markets reprice those possibilities quickly, which can create sharp moves in the first days after results. Historically, that uncertainty has tended to fade once investors have clarity on the new balance of power.

Should I sell my investments after a blue wave?

Election outcomes have rarely determined long-term market results. Rather than reacting to headlines, consider whether your allocation still matches your goals, whether rebalancing is due, and whether tax-smart moves such as tax-loss harvesting or a Roth conversion make sense before year end.

What tax moves should I consider before year end?

Common year-end considerations include harvesting losses to offset gains, rebalancing in tax-efficient accounts, Roth conversions when account values are lower, maximizing retirement contributions, and charitable giving strategies. Roth conversions are taxable income, so consult a tax professional before acting.