How Midterm Elections Move the Stock Market: A Day Trader's Guide

This year's election doesn't arrive in a vacuum, and several conditions could overwhelm the usual midterm pattern in either direction.

The Fed is hiking, not cutting. The Federal Reserve raised its benchmark rate on September 16 to a range of 3.75 to 4.00 percent, its first hike since 2023, and markets have priced a high probability of another hike at the October 27 to 28 meeting. The 10-year Treasury yield hit 5.10 percent on September 23, its highest since 2007. Rate expectations are likely to move stocks more than election results in the weeks around November 3. Our guide to the 10-year yield explains why.

The market already had its midterm-year correction, sort of. Fidelity noted that the S&P 500's peak-to-trough decline earlier in 2026 was about 9 percent, well below the 19 percent midterm-year average. That could mean the typical midterm-year drawdown has already happened in smaller form, or that the market hasn't yet had one. Neither reading is certain.

Congress is closely divided. According to Charles Schwab's August analysis, Republicans held a 220 to 215 House majority and a 53 to 47 Senate majority heading into the fall. With margins that narrow, small shifts in a handful of competitive races can change control of either chamber, which means results may take longer than a single night to become clear.

Earnings season and the election overlap. The largest technology companies typically report in late October and early November. Several megacap reports could land within days of the election. The Q3 earnings season calendar tracks confirmed dates as they're announced.

Energy and geopolitics are still live. Oil prices tied to the Middle East conflict have driven much of 2026's inflation story. A change in that conflict could move markets more than any election outcome.

A crowded IPO calendar. The Wall Street Journal reported on September 18 that Anthropic's planned IPO is now targeting November, which could put it close to Election Day, pending its public filing. DayTradingToolkit's Anthropic IPO guide covers what to watch. A mega-IPO pulling capital from the rest of the market near Election Day adds another variable that has nothing to do with politics.

For a day trader, the most practical question isn't what happens over six months. It's what happens between the 4:00 PM ET close on Tuesday, November 3, and the 9:30 AM ET open on Wednesday, November 4.

Results arrive while the stock market is closed. Polls close in waves starting in the early evening Eastern time, and the most consequential races can take hours or days to call. S&P 500 and Nasdaq-100 futures trade overnight, so the first reaction to results shows up there. By the morning, the market will have priced whatever became clear overnight.

The gap is the trade, and it's already happened. If results are clear by morning, the stock market often opens with a gap in the direction of the market's read of the outcome. On November 7, 2018, the day after that year's midterms, the S&P 500 rose about 2 percent as a divided Congress became clear. In 2022, when control of the House remained uncertain for days, stocks fell the day after the election and then surged on the next day's inflation report. The difference between those two mornings wasn't the party that won. It was whether the result was clear and what else was on the calendar.

Uncalled races extend the uncertainty. If control of either chamber depends on races that take days to count, the "uncertainty resolution" rally can be delayed. A partial result can produce a choppy, low-conviction session rather than a clean trend.

Options pricing tells you what's expected. SPX options with daily expirations let you see how large a move the options market is pricing for November 4. The simple method: add the price of the at-the-money call and put expiring that day, and divide by the index level. That gives you the approximate expected move. In late September, reports noted that VIX futures for the October and November contracts were trading above the spot VIX, a sign that traders were already paying up for protection around the election window.

Election outcomes tend to hit sectors where policy is actively debated, rather than the whole market evenly. The specific sectors change from cycle to cycle depending on what's at stake, but a few groups are sensitive in almost every election.

Healthcare and pharmaceuticals. Drug pricing and insurance policy come up in nearly every election cycle. BlackRock's analysis, citing Bloomberg data, found healthcare was the best-performing sector on average around midterms, with an average return of 10.7 percent.

Energy. Energy policy, drilling permits, and clean energy incentives can move oil, gas, and renewable stocks in opposite directions depending on the outcome. The same BlackRock analysis found energy averaged 8.9 percent.

Financials and industrials. These were the weakest sectors on average in the same data, at negative 0.6 percent and 0.6 percent respectively, possibly reflecting their sensitivity to regulation and government spending.

Defense, infrastructure, and sectors tied to government contracts. Spending priorities differ between parties, and a change in control of either chamber can shift expectations for budget fights and funding deadlines. The current government funding measure runs through December 11, so budget negotiations will follow the election closely.

AI and technology regulation. BlackRock noted polling showing more voters viewing AI negatively than positively, making AI regulation a possible issue for the next Congress. How much that affects AI stocks will depend more on what Congress actually does than on campaign talk.

Sector averages across a dozen elections are thin evidence. Use them as a list of places to look on November 4, not as a list of trades to put on before November 3. A Trade Ideas scan for gaps and unusual premarket volume across these sectors on the morning after the election can show you which groups the market is actually repricing, rather than which ones commentators expected to move.

The goal around an election is not to predict the result. It's to avoid being caught in a gap you didn't plan for and to be ready to trade the reaction once it's clear.

Decide what you're holding overnight on November 3. Any position held through the close on Election Day is exposed to an overnight gap that no stop order can protect against. If you're a day trader, the simplest approach is to be flat or small at the close. If you do hold, size the position as if the worst-case gap will happen.

Check the expected move before the close. Use the SPX straddle method above to see what the options market is pricing. If the expected move is larger than usual, expect a wider opening range and wider stops on November 4.

Watch the futures overnight, but don't trade headlines at 11 PM. Overnight futures are thin, and early results can mislead. The morning's premarket session usually gives a cleaner picture of what's been priced in.

Wait for the opening range. On a gap day, the first 15 to 30 minutes often determine whether the gap holds or fills. The playbook for day trading in a high-VIX market covers how to adjust position size, stops, and targets when volatility spikes.

Keep the rest of the calendar in view. The October jobs report typically lands on the first Friday of November, and megacap earnings could fall the same week. An election result can be overwhelmed by a data release within 48 hours, as it was in 2022.

Separate prediction markets from stock markets. Election betting markets can give a real-time read on expected outcomes, but they're a different product with their own regulatory questions. Our guide to prediction markets and CFTC event contracts covers what's tradable and the risks involved. The stock market's reaction depends on what was already priced in, not only on who wins.

The midterm pattern is appealing because it's simple. That's exactly why it gets misused.

Treating averages as forecasts. An average return of 12 to 14 percent in the year after midterms includes years with very different outcomes. U.S. Bank's statistical tests found the effect wasn't reliable enough to be significant. An average is not a prediction for any single year.

Ignoring the macro backdrop. In 2022, the midterm-year decline was driven mostly by inflation and aggressive Fed hikes, not by politics. In 2026, a similar hiking cycle is underway. Rates, inflation, and energy could matter more than the election.

Trading your own political views. Traders who position based on which outcome they prefer, rather than on what's priced in, tend to overreact to results that match or clash with their expectations. BlackRock's hypothetical example of a $100,000 S&P 500 investment from 2013 into 2026 found that moving to cash whenever a preferred party was out of power left an investor with roughly half the ending balance of simply staying invested. The market doesn't care which party you support.

Assuming a clear result by Wednesday morning. Close races, recounts, and runoffs can leave control of Congress undecided for days. A plan that depends on a clean result on November 4 can fail even if you correctly guessed who would win.

Chasing the first post-election move. Gaps on the morning after an election can reverse as the market digests close races and turns back to rates and earnings. The first move is information, not a guarantee of direction.

Midterm elections belong on your calendar as a scheduled volatility event, in the same category as a Fed decision or a major data release. They can widen ranges, create overnight gaps, and move specific sectors. What they rarely do is override the forces that are already driving the market.

This year, those forces are rates, inflation, and earnings. The most practical plan for the first week of November is to know your overnight exposure on November 3, measure the expected move before the close, trade the reaction rather than the forecast, and keep one eye on the bond market the whole time. The election will resolve one source of uncertainty. It won't resolve the others.