Midterms, Uncertainty and the Final Quarter
Hoxton Blog • Midterms, Uncertainty and the Final Quarter
Next month, the United States goes to the polls.
On 3 November, American voters will choose a new Congress in what are known as the midterm elections, held halfway through a president’s four-year term. Over the coming weeks, expect a great deal of noise: polls, predictions, and confident claims about what each possible result could mean for the economy and for markets. This week we want to step back from that noise and show you what history says about how the stock market has tended to behave at exactly this point in the cycle, and what that does, and does not, mean for you.
What History Shows About the Final Quarter
The chart below looks at the US stock market’s average return in the final three months of the year, October to December, going all the way back to 1950. It groups every one of those years by where it sat in the four-year US presidential cycle: a president’s first year in office, the midterm year, the year before the next presidential election, and the presidential election year itself. 2026 is a midterm year, so it is the second bar that matters most right now.
Source: Exhibit A, FactSet Research Systems Inc., Standard & Poor’s. Data since 1950. Latest: 31 December 2025. Past performance is not indicative of future results.
The pattern is clear. On average, the final quarter of a midterm year has delivered a gain of 6.6%, the strongest of the four. By comparison, the same quarter has averaged 3.7% in a president’s first year, 3.9% in the year before a presidential election and 2.5% in a presidential election year itself.
Two things stand out. First, the end of the year has, on average, been a positive time for the market in every year of the cycle. Second, it has been noticeably stronger in midterm years, the type of year we are in now.
Why Midterm Years Have Tended to Finish Strongly
There is a sensible explanation for this, and it comes down to uncertainty. Markets dislike uncertainty more than almost anything else. In the months before a midterm election, there are plenty of open questions: which party will control Congress, and what that might mean for taxes, spending and regulation. That uncertainty can make the run-up to the vote an unsettled time. Research from Capital Group, for example, finds that since 1970 midterm years have typically been more volatile than other years.
Once the votes are counted, much of that uncertainty lifts, whatever the outcome. Investors no longer have to guess; they can plan around a known result. The relief comes from having an answer, rather than from any particular answer. Historically, that relief has often shown up as a recovery in share prices into the end of the year, and it has tended to last beyond it. According to the same Capital Group research, the S&P 500 was higher one year after every midterm election from 1950 to 2022.
An Average, Not a Promise
As always, a word of balance. These figures are averages across more than seven decades, and averages hide a wide range of outcomes. Not every midterm year has followed the pattern. In 2018, for example, the final quarter of the midterm year saw the US market fall by around 14%, as worries about rising interest rates and trade tensions took hold. Investors who held their nerve did not have to wait long: by the following spring the market had recovered those losses and gone on to reach new highs.
So we would not suggest making investment decisions based on this pattern, or trying to time the market around the election. History offers helpful perspective, not a forecast. The real lesson of this chart is not that the coming months are guaranteed to be good, but that the noise around elections, however loud, has rarely been a good reason to step away from a sensible long-term plan.
The Principle Underneath: Look Past the Noise
Elections are among the biggest generators of headlines there are, and it is natural to feel that something this important must call for action. History suggests otherwise. Markets have come through elections of every kind, and governments of every colour, and have kept growing over the long run. That is because what ultimately drives them is the work of thousands of businesses, serving their customers and growing their profits, not the result of any single vote.
The investors who tend to fare worst around elections are often those who react to them: selling ahead of the vote out of worry, then missing the recovery that follows once the uncertainty clears. Those who simply stay the course are there for it.
This is why we build portfolios the way we do for our clients at Hoxton: spread across many companies, many industries and many countries, ready for a range of outcomes rather than positioned around a guess about who will win. We do not need to know the result, nobody does, and a well-built portfolio does not depend on it.
And a Word on Staying Invested
It is worth adding, as we often do, that the surest way to miss out on the kind of strength history points to is to be sitting on the sidelines in cash. With the cost of living still rising, money left in a bank account slowly loses value, buying a little less each year. Historically, a good part of the midterm-year strength has come around and after the vote, and gains like these rarely announce themselves in advance. Being invested when they arrive matters far more than trying to pick the right moment.
Our Message This Week
The coming weeks will bring plenty of political noise as the US heads into its midterm elections. History shows that the final quarter of a midterm year has, on average, been the strongest of the four-year cycle, as uncertainty lifts once the votes are counted. That is encouraging, but it is an average, not a promise, and not every year has followed the pattern.
The lesson, as ever, is not to let the headlines drive your decisions. You do not need to predict who will win, or how markets will react in the days that follow. You simply need to stay diversified, stay invested, and let time and the long-term growth of businesses work quietly in your favour. As always, if you would like to talk through what any of this means for your own plan, we are here to help.
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