Midterm Elections Are One Month Away: Almost a Century of History Says This Would Be the Best Outcome for Stocks

For the better part of the six years President Donald Trump has been in the White House, stocks have thrived. The annualized return of the timeless Dow Jones Industrial Average (DJINDICES:^DJI), benchmark S&P 500 (SNPINDEX:^GSPC), and tech-powered Nasdaq Composite (NASDAQINDEX:^IXIC) is higher under Trump than under most other presidents over the last 130 years.

But from a historical standpoint, stock market returns can accelerate or fall off a cliff based on the makeup of Congress. Though not every bill passed by Congress and signed into law by the president impacts Wall Street, our elected officials are ultimately responsible for fiscal policy, which does impact corporate America.

Exactly one month from today, on Nov. 3, Americans across the country will go to the polls or mail in their ballots for Election Day. Based on what history says, there's one very clear scenario that would be the best outcome for stocks on Nov. 3. But according to prediction markets, the worst-case scenario may unfold.

Midterm elections may yield a worst-case scenario for stocks

In the first two years of President Trump's non-consecutive terms, he's overseen a unified government, with the U.S. Senate and House of Representatives controlled by Republicans. The GOP currently holds 53 of 100 Senate seats and 218 of 435 seats in the House.

Unified governments are favored by sitting presidents because it's a lot easier to pass major legislation and keep campaign promises.

For instance, Republican control of both houses of Congress proved instrumental to the passage of the Tax Cuts and Jobs Act (TCJA) in December 2017. This tax and spending law permanently lowered the peak marginal corporate income tax rate from 35% to 21% -- the lowest level since 1939. With businesses retaining more of their income, stock buybacks skyrocketed, boosting earnings per share.

President Trump took advantage of a unified Congress last year to pass a second major tax overhaul, the "Big, Beautiful Bill." This legislation made the TCJA's personal tax brackets permanent and introduced a bevy of temporary tax breaks from calendar years 2025-2028.

But similar to Donald Trump's first term as president, the second half of his second term is expected to feature a divided Congress.

61% chance Democrats sweep the midterms. https://t.co/ZVG6ezlEiP

— Polymarket (@Polymarket) September 18, 2026

According to traders on prediction market Polymarket as of Sept. 28, there's just an 8% chance that Republicans sweep the midterm elections and retain control of both houses of Congress. By comparison, there's a 61% probability that Democrats retake both houses, and a 31% chance that Republicans hold the Senate and Democrats retake the House.

Based on nearly a century of history (1926-2023), researchers at retirement education platform Retirement Researcher calculated the average annual return of the benchmark S&P 500 based on whether a Democrat or a Republican was president and whether Congress was unified or split. Here are the results:

• Democratic president with a split Congress: 16.63% average annual return over 15 years
• Unified Republican: 14.52% average annual return over 13 years
• Unified Democrat: 14.01% average annual return over 36 years
• Republican president with a split Congress: 7.33% average annual return over 34 years.

Given that Donald Trump's term ends in January 2029, the best outcome for stocks, from a purely historical standpoint, would be a Republican sweep on Nov. 3. Though it's the smallest sample size, unified GOP governments have overseen the second-highest returns over 98 years.

However, the odds of a Republican sweep are quite low, per prediction markets. If Democrats retake the House and/or Senate, stocks will be facing the historical worst-case scenario: a 7.33% average annual return.

Even historical worst-case scenarios aren't that bad for investors

The stock market's one historical outlier in average annual returns, a Republican president overseeing a divided Congress, is difficult to explain. While it can be argued that political gridlock unnerves investors, a Democratic president overseeing a divided Congress has delivered the highest average annual returns since 1926.

Debt-ceiling concerns might also explain this underperformance. It's a lot easier for a unified government to raise the debt ceiling than it is for a split Congress.

Whatever the reasons are behind this underperformance, it's imperative that investors maintain perspective. While history tells us that a Republican president with a split Congress delivers the lowest average annual return, a 7.33% yearly gain for the S&P 500 is still notably higher than the average annual long-term returns of gold, silver, oil, real estate, and Treasury bonds.

Perhaps most importantly, Retirement Researcher's data affirms that no matter how the puzzle pieces are arranged, the stock market is unwavering in its ability to create wealth over long periods.

^SPX data by YCharts

Earlier this year, analysts at Crestmont Research refreshed a data set that examines the rolling 20-year total returns, including dividends, of the broad-based S&P 500 since 1900. Even though the S&P didn't exist until 1923, researchers were able to track the performance of its components in other major indexes back to 1900.

Crestmont's data yielded 107 unique rolling 20-year periods (1900-1919, 1901-1920, and so on, through 2006-2025), all of which produced a positive average annual return. In other words, no matter what obstacle presented itself -- recession, depression, pandemic, war, high inflation, oil embargo, banking crisis, or an unfavorable congressional makeup -- the stock market always gained after 20 years.

Even if a worst-case scenario is setting up for the stock market with midterm elections, history says long-term investors are still sitting pretty.

Sean Williams has 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.