Every four years, the same pattern plays out in the stock market: midterm elections produce a more gridlocked Congress, and that gridlock has historically preceded one of the strongest nine-month stretches for stocks on record.
Ken Fisher, founder and executive chairman of Fisher Investments, lays out the pattern in a new column. Presidents push their biggest, most divisive legislation in the first two years of a term, before midterms cost them political capital. That uncertainty weighs on markets. Since 1914, when the 17th Amendment established direct Senate elections, the president’s party has lost House seats in 89% of midterms, averaging 30 seats, and lost Senate seats in 71% of midterms, averaging 4 seats.
That’s when the pattern flips. Using data back to 1925, the S&P 500 has gained in 84% of midterm-year fourth quarters, and in 92% of the nine-month stretches that begin with those quarters. The average gain across those nine-month runs is 19.8%. The effect isn’t confined to the U.S. either — in the 10 such episodes since reliable foreign market data exist, overseas stocks have never lost money over that same nine-month window.
Fisher notes the pattern doesn’t depend on which party wins or loses, or how stocks performed earlier in the year. It works, he argues, precisely because investors on both sides expect disaster if their party loses control, and that fear gets priced out once it becomes clear Washington will simply do less.
He points to a recent real-world example: from the start of Q4 2022 through the end of Q2 2023, the S&P 500 jumped 26%, despite weak markets heading into that October.
What’s in play this fall
Republicans currently hold narrow majorities in both the House and Senate. Gerrymandering by both parties has left few truly competitive House races — Fisher puts the number of genuine tossups at around 25, enough to decide a chamber that’s nearly evenly split. In the Senate, only seven seats are considered true tossups, with Republicans holding a three-seat cushion.
Fisher argues the market-friendly effect doesn’t require either chamber to flip outright. Even a modest shift — say, one House seat and two Senate seats — would be enough to tighten gridlock further, leaving Republicans in technical control while controversial legislation stalls before it reaches the president’s desk. He also notes that in a president’s final term, GOP lawmakers may grow less loyal after November as they look past the current administration.
His bottom line for investors: ignore the noise. Talk of a Democratic Socialist surge, President Trump’s proposal to send Americans $5,000 checks, and the usual midterm rhetoric will all intensify in the coming weeks. Fisher’s advice is not to let it shake confidence in stocks, which he says will begin pricing in a long stretch of reduced political risk as the legislative session quiets down.
