Should You Buy Stocks Ahead of the Midterms? History Says There's a 100% Chance Of This Happening If You Do.
Investors have recently been rocked by a big sell-off in the tech sector, especially in AI-related semiconductor stocks . Add in the ongoing war in Iran, higher inflation and interest rates, and the uncertainty over the mid-term election, and it's no wonder stocks have largely sold off heading into November.
But should you buy the dip? According to the history of returns for the S&P 500(SNPINDEX: ^GSPC) after midterm elections, you most definitely should.
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100% of the time, it's worked every time
Since 1950, investors buying at the end of October during a mid-term year have been treated to subsequent positive 12-month stock market gains 100% of the time. You read that right; the S&P 500 has had positive one-year returns following every single mid-term election in recent history. The average return is 16.6%, with a median return of 16.3%. The lowest one-year return was 3% in 2014, while the highest was 33.6% in 1954.
Even on a short-term basis from October through the end of the year, the average return was positive at 3.6%, with a median return of 3.2%. However, not all years were positive over this time frame, with 13 out of 19 midterm years posting positive returns through year-end. The highest return over this time period was also in 1954, at 13.6%, while the lowest return was a (7.6%) decline in 2018.
The reason for this positive return is generally chalked up to the "uncertainty" around midterm elections getting resolved, one way or the other. Many times, the market declines into midterm elections, setting itself up for a "bounce." In general, midterms tend to favor the party that doesn't control the White House. The market tends to like a divided government, as that typically means no major new policies are implemented, giving businesses visibility and allowing markets to function unimpeded by new regulation.
With this data in mind, it seems like a no-brainer to purchase stocks before the midterms.
Could this time mark the first time the trend doesn't hold up?
While buying the dip may seem like a no-brainer, it's important to note that investing isn't an exact science. After all, remember that the worst two-month post-midterm dip came in 2018, during the last Trump Presidency.
Furthermore, the weight of the AI boom is likely to "trump" any other factors here. Notably, the two midterm elections around the dot-com boom were in 1998 and 2002, not around the bubble bursting in early 2000.
If, and that's a big if, the AI boom turns into a bust over the course of the next year, that would likely be a bigger factor than any historical technical pattern. Additionally, there appears to be significant political backlash against data center construction, especially within the Democratic Party. Should the Democrats catch a "blue wave" on Nov. 2, that could usher in a push to limit data center construction. While President Trump would likely veto any such legislation, there have also been anti-data-center rumblings among some Republican politicians.
Needless to say, if the Federal Government restricts the construction of new data centers to a punitive degree, that could derail the AI boom we are seeing.
But Anthropic's S-1 showed the build-out is likely to continue
While the AI build-out could turn into a bubble eventually, it doesn't appear that we are near the end of the build-out today. Most semiconductor companies say that they are sold out through next year and even into 2028. Meanwhile, leading frontier model provider Anthropic just published its S-1 document ahead of its initial public offering.
Anthropic's results were very impressive, with a massive revenue surge and operating profitability in the second quarter. Another incredible statistic in the S-1 was that "revenue from Fortune 500 customers paying $100K+ a year averaged under 0.1% of those customers' total expenses in the September 2026 quarter."
That means the world's biggest companies don't even spend that much on AI today, leaving lots of room for growth in the future.
Keep to your investment plan
Overall, one shouldn't necessarily change one's investing plan just because it's a midterm year. The market is unpredictable, so prudent investing entails making regular contributions to a stock portfolio with an eye on the long term, rather than short-term market moves.
That being said, given the recent sell-off and historical patterns following a mid-term year, now may be a good time to begin an investing plan if you don't already have one, or perhaps contribute a little more than your typical monthly contribution in November.
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Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .
Should You Buy Stocks Ahead of the Midterms? History Says There's a 100% Chance Of This Happening If You Do. was originally published by The Motley Fool
