Midterm Reflections on the Market

by

It has not escaped observation that the S&P 500 has, of late, enjoyed a period of prosperity, returning a most agreeable increase in value for three successive years. Wall Street, ever optimistic, anticipates a continuation of this fortunate trend; yet, a prudent mind recalls that midterm elections possess a habit of introducing a certain…discomfort to the proceedings.

One ought to be aware of the particulars.

A Season of Uncertainty

The history of the S&P 500, extending back to 1957, reveals a marked tendency towards volatility during those years when the political landscape undergoes a re-evaluation. It is a truth seldom spoken aloud, but one which any seasoned observer will readily acknowledge.

  • The index, upon average, yields a modest return during such periods, though a new administration often introduces a degree of…correction.
  • More remarkably, a substantial intra-year decline—approximately eighteen percent—has been a recurring feature. One anticipates, therefore, a similar circumstance in the coming year.

The explanation, whilst not entirely novel, lies in the unsettling nature of uncertainty. Midterm elections invariably lead to a shifting of power, and investors, naturally averse to risk, find themselves in the delicate position of determining whether the prevailing order will endure. Such a position is, to say the least, inconvenient.

However, it is equally true that this period of disquiet is usually brief. Once the election results are settled, a degree of calm returns, and the market, ever resilient, often rewards those who have maintained their composure. Indeed, Carson Research suggests that the six months following a midterm election are particularly propitious, offering a substantial return on investment.

One should not, however, be tempted to engage in speculative maneuvers. Attempts to “time the market” are, more often than not, exercises in futility. As the late Mr. Lynch so astutely observed, more fortunes have been lost through anticipation of corrections than through the corrections themselves.

It is also worth noting that the S&P 500 has, on occasion, performed rather well during midterm years, though such instances are, perhaps, more the exception than the rule. Most analysts, it appears, anticipate a reasonably favorable outcome in the coming year.

Expectations and Their Discontents

Wall Street, in its collective wisdom, currently projects an increase of sixteen percent in the S&P 500 over the next twelve months. FactSet Research, having consulted the opinions of numerous experts, suggests that the index will reach 8,085. A pleasing prospect, to be sure.

One must, however, approach such pronouncements with a degree of skepticism. Wall Street’s forecasting abilities, whilst not entirely lacking in merit, have, in recent years, proven to be…imperfect. The median estimate has, on average, been off by fourteen percentage points.

  • In 2023, the estimate of 4,200 proved to be somewhat conservative, the index ultimately closing at 4,770.
  • In 2024, a prediction of 4,700 was surpassed by a closing value of 5,882.
  • And in 2025, an estimate of 6,500 was exceeded by a modest increase to 6,845.

The larger picture, therefore, is one of cautious optimism. Despite the prevailing enthusiasm, investors would do well to remain vigilant. The current political climate, and the possibility of a shift in policy, introduces a degree of uncertainty that cannot be ignored.

Prudence dictates a measured approach. One should limit investments to those opportunities that inspire the greatest confidence, and maintain a sufficient reserve of capital to weather any unforeseen storms. A well-timed acquisition of assets during a period of correction may prove to be a most advantageous strategy.

Read More

2026-01-19 11:12