Election season is approaching, and with it will come no shortage of predictions about what the 2026 midterm elections could mean for the economy and financial markets. While it is natural to pay attention to major political events, it is also important to keep them in perspective. Markets respond to a wide range of economic, corporate and global factors, and election outcomes are only one piece of a much larger picture. As the conversation around the election picks up, here are five things to keep in mind.
Markets dislike uncertainty, but uncertainty is not new
Election cycles can bring periods of heightened attention and market volatility as investors consider potential changes to taxes, regulations, government spending and other policies. But uncertainty is a constant in investing. Markets are always responding to new information, whether it involves interest rates, inflation, economic growth, corporate earnings, geopolitical events or something else. Historically, midterm election years have been somewhat more volatile than other periods, but that does not necessarily mean investors should make changes based on the election calendar. In many cases, the market's response has been more closely tied to changes in policy uncertainty than to which party ultimately wins or loses.
Election outcomes are difficult to predict, as are market reactions
Even when an election result appears clear, predicting how markets will respond can be challenging. Markets do not simply react to the outcome itself. They also respond to what investors expected to happen, how much of that outcome was already reflected in market prices, and what other economic developments are taking place around the same time. A market reaction that seems surprising in the moment may make more sense when viewed in the context of expectations and other factors already influencing investors. This is one reason trying to position a portfolio around a predicted election outcome can be difficult.
The economy and corporate fundamentals still matter
Interest rates, inflation, economic growth, corporate earnings and global events do not stop mattering during an election year. In fact, these factors can have a much greater influence on markets over time than the outcome of a single election. For example, Fidelity notes that two recent midterm years, 2018 and 2022, both saw negative stock market returns. However, market performance during those years was influenced by a range of economic factors, including Federal Reserve policy and rising interest rates, illustrating that elections are only one of many factors that can affect markets.
Headlines can create emotional reactions
Election coverage can be constant, and dramatic headlines can make short-term developments feel more significant than they may ultimately prove to be. Polls change. Predictions change. Candidates make new proposals. Then, consequently, markets react to the latest news, sometimes sharply. That can make it tempting to make investment decisions based on what is happening in the moment. But reacting to each headline can make it harder to stay focused on the bigger picture. Taking a step back can help separate the news of the day from the factors that are more relevant to your long-term financial strategy.
Your long-term plan should remain the starting point
Elections come and go, but your financial goals may extend across many election cycles. Rather than making portfolio decisions based on predictions about what may happen in November, consider whether anything has actually changed in your own financial picture. A change in your income, retirement plans, spending needs, tax situation, risk tolerance or other personal circumstances may warrant a conversation about your financial plan. The latest election headline may not.
History also provides some perspective. Fidelity's analysis of midterm elections found that the S&P 500 has been positive in 95% of the 12-month periods following midterm elections since 1938, although past performance is not a guarantee of future results. The goal is not to ignore the election or its potential economic and policy implications. It is to keep it in context and avoid allowing short-term political uncertainty to drive long-term financial decisions.
Sources:Fidelity Investments, Standard & Poor's as of 15 January 2026, Capital Group
This communication is for information and educational purposes only. This is not a recommendation for the sale or investment in any product or strategy or to be perceived as individual advice. Information presented has been prepared from sources believed to be reliable but is not guaranteed and does not represent all available data necessary for making investment decisions. Economic and market forecasts presented herein reflect a series of assumptions and judgments as of the date of this presentation and are subject to change without notice. Forecasts do not consider the specific investment objectives, restrictions, tax and financial situation or other needs of an individual. Actual data will vary and may not be reflected here. Accordingly, these forecasts should be viewed as merely representative of a broad range of possible outcomes. The opinion expressed by this individual is based on facts and circumstances known at this time, is subject to change and does not reflect the opinions of all financial professionals of XML.