As of Oct. 9, some polls and prediction markets were pointing to the possibility of a “blue wave” in the November midterm elections, in which Democrats could win a majority in the House and either form a tie or take control of the Senate.
Some investors may be adjusting their portfolios for that possibility, while others may be investing based on a spate of Republican victories. That’s because many market watchers believe that political outcomes, such as which party controls Congress or wins the presidential election, can have a significant impact on stock markets.
But Ryan Detrick, chief market strategist at financial services firm Carson Group, said the data shows those assumptions are largely wrong.
“It’s not about red or blue, it’s about green,” he says. Historically, there may be a correlation between having different political parties in power and higher stock market returns, but a particular president or party in power “is not necessarily good or bad for the market,” he says.
“Of course, what’s important to the fundamentals is the economy, profits, Fed policy, inflation. All of these things are much more important than whether your team is sitting in the White House or not,” he added.
Here’s what the data shows:
Stock prices become unstable in medium-term years.
Historically, the overall U.S. stock market has trended upward over long periods of time and across nearly every presidential term. Invesco research shows that since 1957, all presidents except Richard Nixon, who resigned midway through his term, and George W. Bush, who ended his second term amid the global financial crisis, have left the market in better shape than when they were elected.
Despite the overall positive trend, Detrick points out that the interim period of a four-year presidential term tends to be the most volatile, based on an analysis of the S&P 500’s returns from 1950 to 2025. Detrick’s data shows that the overall stock market, on average, has experienced the largest decline compared to any other interim period in a presidential cycle.
Detrick said it’s notable that the large average rebound seen over the medium term is accompanied by the largest 12-month average rebound from the low.
That doesn’t mean we need to wait for a medium-term decline to drive the stock higher. Rather than trying to time the market, experts recommend investing consistently in a diversified portfolio and letting compound interest pay off over time.
“People make irrational decisions at the worst possible time, and then the market takes over,” Detrick said of investors who try to move money based on hopes for political outcomes.
“Markets don’t always make sense”
It’s easy to see why investors think the election results could affect the stock market. Lawmakers pass laws that directly impact what publicly traded companies can do. As an extreme example, it would be reasonable to imagine that Coca-Cola and PepsiCo stocks could disappear if Congress enacted a nationwide soda ban.
In reality, stock markets tend to operate fairly independently of politics, Detrick said. Two real-world examples: When President Barack Obama was elected, investors thought it would be good news for environmental, social, and governance stocks. That wasn’t actually true. For example, the price of the Invesco WilderHill Clean Energy ETF, a clean energy index fund, fell nearly 58% between January 2009 and the end of 2016, when President Obama left office. The S&P 500 is up about 140% during this period.
Investors recently thought President Donald Trump would boost coal stocks because of his support for coal as an energy source. That didn’t happen during his first term. The VanEck Vectors Coal ETF, which tracked coal industry companies until they liquidated in late 2020, fell about 37% from the end of January 2017 to the end of January 2020, before the pandemic caused a widespread market downturn. The S&P 500 index rose about 46% over the same period.
“Markets don’t always make sense,” Detrick said.
Historically, the stock market has performed better under Democratic presidents, his analysis of the S&P 500’s annual returns from 1951 to 2025 shows. According to Detrick’s analysis, the average annual return for the S&P 500 was about 12% under Democratic presidents, compared to about 8% under Republican presidents. But Republican-led Congresses typically outperform Democratic-led Congresses.
Detrick said divided Congresses, where one party controls the House and the other party controls the Senate, tend to be best for stocks based on historical returns.
Part of that is due to partisan impasse, he says. He said parliamentary unity generally means more spending, regardless of which party is in control. Increased federal spending, which is contributing to the ballooning national debt, could cause problems for the stock market, given that it could lead to higher interest rates and Treasury yields.
In that sense, from a stock market perspective, “the joke is, ‘The best Washington gets nothing done,'” he says.
Voters may want a more unified Congress that passes certain bills and issues quickly, but political difficulties that slow that process seem good for markets.
