US stocks always rise after midterms. Is this time different?
SPY•The S&P 500 has risen in every 12-month period after a US midterm election since 1946, gaining an average 14.4%. But after the latest election, US stocks shed $3.2 trillion and chip stocks fell 12%, as investors weighed risks to the AI buildout and the possibility of more aggressive Federal Reserve rate hikes.
1. A historical pattern
The S&P 500 gained an average 14.4% and a median 13.7% in the 12 months after midterm elections between 1946 and 2022, compared with an average gain of just over 9% and a median rise of 11.6% across calendar years since World War Two. Uncertainty often eases after elections, while divided government can reduce the likelihood of major policy changes.
2. Risks to the outlook
The recent market reaction was sharp: US stocks shed $3.2 trillion, and chip stocks fell 12% in their second-biggest drop on record. The S&P 500 was still 5% below its all-time high after the selloff, while its maximum drawdown before Thursday had been only 9%, compared with a typical midterm-year pullback of around 18% to 19%.
3. Concentration and rates
The article points to concentrated exposure to a small number of large technology companies and the scale of AI investment, which some estimates put above $10 trillion between 2025 and 2032. It also notes that markets are pricing in 75 basis points of further Federal Reserve tightening, while historical post-midterm rate policy has varied. A downturn or reversal in AI spending, a more aggressive Fed or recession could challenge the historical pattern.
