Every couple of years, election season brings a familiar knot to the stomach. Not just about who wins, but about what it might mean for our retirement savings.
Whatever you think of the outcome, this isn’t a post about politics. It’s a post about your retirement money. And the history here is more reassuring than you might expect.
The statistic
I’ve been in finance for nearly 30 years, and I’ve heard a version of this one after nearly every election. Before writing about it, I went back and checked the details.
Since 1950, the S&P 500 has been higher 12 months after every single midterm election. That’s 19 for 19. The average gain over that year has been roughly 15%.
Go back further, to 1874, and the market rose in the year after 32 of 38 midterms, about 84% of the time, with an average gain of around 14%. That beats the market’s typical 12-month return. Crazy! But will this happen again?
Does divided government matter?
I’ve heard this framed as “a divided government is good for the market,” and there’s some truth to it. When one party holds the White House and the other controls part of Congress, big changes get harder to pass, and markets tend to like predictability.
Looking back to 1874:
- When a midterm produced a divided government under a Republican president, the market was up in the following year about 93% of the time.
- Under a Democratic president, it was up in 8 of 9 cases – 89% of the time.
But here’s the part I find most reassuring: the pattern has held no matter who won. Not which party, not how many seats changed hands, not who ended up in charge.
So why does it happen?
The most likely explanation isn’t politics at all. It’s that uncertainty ends.
In the months before a midterm, especially this one, the market has been volatile. Nobody knows what’s coming, and markets hate not knowing. Once the votes are counted, the picture clears up, and investors get back to business.
The honest part
A streak is not a promise. Past performance doesn’t guarantee future results, and this year has lots of wrinkles.
Stocks are expensive right now by historical standards. One of the measures that reflects this is the Shiller CAPE ratio. This ratio compares the S&P 500’s price to its average inflation-adjusted earnings over the past 10 years. Looking at a full decade smooths out the boom years and the bust years, so you get a clearer sense of whether stocks are cheap or pricey.
Over the past 150 years, the CAPE has averaged about 17. Since 2000 it has been about 27. In October, it was about 41. The only time it has ever been higher was in 1999 and 2000, just before the dot-com crash.
To be fair, the more familiar P/E ratio, which I usually watch, tells a calmer story. This is the one you’ll hear quoted on the news: the S&P 500’s price compared with what companies are expected to earn over the next 12 months. Right now it’s about 21, versus a 10-year average of roughly 19. That’s pricey, but not extreme. The two measures disagree because company earnings have grown so fast lately. The CAPE asks, “Compared with the last decade, is this expensive?” The P/E asks, “Compared with next year, is this expensive?” Both are useful, and right now they’re both saying stocks aren’t cheap.
Then there’s Warren Buffett’s favorite yardstick, now known as the Buffett Indicator. It compares the total value of the U.S. stock market with the size of the entire U.S. economy (GDP). Since 1970, the stock market has averaged a little under 90% of GDP. Today it’s close to 290%. At the height of the dot-com bubble, it was about 170%. Different sources calculate it a little differently, but every version I’ve seen puts it at or near a record.
And finally, the one that matters most to me personally: how much of the market is riding on just a few companies. In 2015, the seven biggest tech companies made up about 12% of the S&P 500. Today, they make up about a third. The ten largest companies alone account for nearly 38% of the index. Many of those companies are betting big on AI. So if you own an S&P 500 index fund, you’re far less diversified than you might think, and a lot of your money is riding on whether the AI boom pays off.
Does that mean a crash is coming? Not necessarily. High valuations can stick around for years, and none of these measures is a good tool for timing the market. With the midterms behind us, less uncertainty may help calm some of the recent ups and downs. But stock prices are still high, and that’s worth respecting. A great track record after midterms doesn’t make the market immune to a recession or a correction.
So I’m not telling you the market will go up this year. I’m telling you that an election, by itself, has rarely been a good reason to panic.
What this means for those of us in (or near) retirement
When you’re 35, a bad year in the market is a blip. When you’re 65 and drawing from your savings, a bad year feels a lot more personal. I understand the urge to do something when the headlines get loud.
Here’s what I’m doing instead:
- Keeping a cash cushion. Having a year or two of spending set aside means you are never forced to sell stocks in a down market just to pay the bills. That’s the single thing that lets me sleep at night. It helps eliminate Sequence of Returns Risk.
- Checking my allocation, not my emotions. If the market has run up and my mix has drifted more aggressive than I planned, it might be time to rebalance. That decision is based on my plan, not on who won. Personally, I work closely with a Financial Advisor who helps with this.
- Not trading on election results. When the news gets scary, it’s tempting to sell and wait until things feel safer. But by the time things feel safe, the market has often already bounced back. So you end up selling low and buying high, the exact opposite of what we want.
- Turning off the noise. I love staying informed, but I try not to look at my portfolio all the time. The markets will ebb and flow. If you can develop a strong financial plan with a trusted advisor, you will sleep better at night.
None of this is exciting. That’s the point. The most powerful thing most of us can do with our portfolios after an election is nothing at all.
The part we can control
A lot of what scares us in retirement is outside our hands, and a surprising amount of it works out better than we feared.
We don’t get to choose what happens in Washington. We do get to choose whether we stick with our plan.
This post is for educational purposes only and is not personalized financial advice. Your situation is your own, and a good fee-only advisor can help you decide what fits you. Past performance does not guarantee future results.
SSources: The Motley Fool analysis of Robert Shiller’s S&P 500 data (1874–present); The Motley Fool, “The S&P 500 Has Never Been Lower 12 Months After a Midterm Election” (2026); Robert Shiller CAPE data via Multpl; S&P 500 forward P/E via YCharts; Buffett Indicator via Federal Reserve Z.1 data and The Motley Fool; S&P 500 concentration data via Finnovate and Eco3min.
