S&P 500 Expected to Rally After November Midterm Elections

The S&P 500 index faces a historically challenging period in September, with an average monthly return of negative 1.1 percent from 1928 to 2025. This month remains the only period in the calendar where the index posts a negative median return, distinguishing it from other months like February, which averages just negative 0.1 percent over the same timeframe. Market participants should anticipate heightened volatility as the index has recorded negative returns in 55 percent of Septembers since 1928.

The weakness in September is often attributed to tax-loss selling by mutual funds ahead of their October 31 fiscal year-end. Additionally, the pre-election environment contributes to market instability. According to data cited by GN stocks/sp500, the S&P 500 has declined by 5 percent or more during the September-October stretch in 63 percent of midterm election years since 1930. Current macroeconomic pressures, including consumer struggles and geopolitical tensions, are expected to exacerbate this volatility.

Post-Election Rally Historically Consistent

Despite the anticipated short-term turbulence, the long-term outlook following the November 3 midterm elections is strongly positive. Since 1938, the S&P 500 has generated gains in the 12 months following midterm elections in 95 percent of cases. This track record is even more robust since 1950, where the index has posted positive returns in 100 percent of the periods examined.

Average Returns Exceed Historical Norms

The magnitude of these post-election gains is significant. Since 1950, the S&P 500 has delivered an average annual return of approximately 14.5 percent in the 12 months following midterm elections. This performance outpaces typical market averages, suggesting that the uncertainty of the election period often creates a buying opportunity for investors who can withstand the initial volatility.

Macro Factors Influence Market Trajectory

Several concurrent factors are shaping the current market environment. Concerns regarding artificial intelligence valuations, potential interest rate hikes, and a weakening consumer base add layers of complexity to the September-October period. However, historical patterns suggest that once the election uncertainty is resolved, these macroeconomic headwinds often give way to broader market expansion.