Why the U.S. Stock Market Often Declines During Midterms

A Well-Documented Statistical Pattern

Will the U.S. stock market decline as the midterm elections approach on November 3? This could very well be the case, according to an analysis by Dow Jones Market Data cited by MarketWatch. Between 1928 and 2025, the S&P 500 shows an average performance of -2.76% from the end of April to the end of September during midterm election years. This is by far the worst stretch in the four-year U.S. presidential cycle.

In comparison, the same window shows +5.05% in presidential election years, +3.64% in post-election years, and +2.24% in pre-election years.

Historical performances of the U.S. stock market during midterms.

A few dark years weigh heavily on the average. In 1930, the index lost more than 25% during this period. In 1974, the drop reached 29.6%, and in 2002, it was 24.3%. Even excluding these extreme episodes, the average performance remains nearly flat, at just +0.006%.

Why Do Midterms Weigh on the Markets?

Jeffrey Hirsch, head of Hirsch Holdings and editor of the Stock Trader's Almanac, offers a political explanation. During midterm years, investor attention shifts from corporate earnings to the battle for control of Congress. The party of the sitting president typically loses seats, which fuels uncertainty.

Some propose another psychological explanation this time.

Greed manifests during earnings seasons, fear right after. Jay Hatfield, CEO of Infrastructure Capital Advisors.

This year, the scenario does not yet fit. The S&P 500 gained 3.7% in May and has just recorded eight consecutive weeks of gains, its longest streak since 2023. The index is trading around 7,507 points, close to its annual record of 7,620.

The Dow Jones is also trading in record territory, above 52,000 points. However, the VIX, the fear index, remains unusually high at 16.7% for such a bullish market, according to Charlie McElligott of Nomura. A signal suggesting that something "is off beneath the surface."

How to Prepare for a Market Decline?

Investors anticipating a decline in stocks have several strategies at their disposal. The simplest is to reduce their exposure to risky assets or to increase their cash holdings. More experienced investors can also bet on declines through inverse ETFs, futures contracts, put options, or leveraged products, which carry high risk.

Historically, phases of stock correction are often accompanied by a renewed interest in assets considered safe havens, particularly gold.

Bitcoin, on the other hand, displays more ambiguous behavior: despite a narrative of "store of value," data shows it remains strongly correlated with U.S. stocks during financial stress episodes. Since 2022, it has generally behaved like a "risk-on" asset, with a positive correlation often between 0.4 and 0.7 with the S&P 500 depending on the periods.

An election-related correction could therefore benefit gold more than Bitcoin, although this relationship is neither constant nor systematic.

Investors will also monitor the Federal Reserve's trajectory on rates, as well as tensions around the Strait of Hormuz and oil prices, two variables cited as major risks for the second half of the year.

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