Election Volatility: Stocks Before and After the Midterms
By Stephen Manning · @StephenCFU on X · · 9 min read
Election volatility in midterm years: why stocks have often been weak before the vote and firmer after, how 2026 compares with 1998 and 2022, and options plays.
Midterm election years have historically been the weakest year of the four-year presidential cycle for the S&P 500, with the soft patch usually coming before the vote and the strength after it. With the 2026 midterms on November 3, here is what that history shows, how this year compares with 1998 and 2022, and how options traders can use the volatility.
📊 Key Takeaways
- ✓ Positive in the 12 months after every midterm since 1950 for the S&P 500. A pattern, not a promise.
- ✓ On average, the midterm year has been the weakest of the four-year cycle.
- ✓ 2026 followed three straight double-digit years. Four midterm years since 1928 had the same setup, and only 1998 finished higher.
- ✓ The classic shape: a soft first half, a low somewhere between summer and October, then a firmer finish.
- ✓ Option premiums often rise with election uncertainty, which helps sellers who keep their risk defined.
In This Article:
Five Weeks to the Midterms: What to Re-Check
We first published this in early January. As of October 1, the vote is about five weeks away, on Tuesday, November 3, 2026, which puts the market in the stretch where the midterm pattern has historically turned.
Two things from the January comparison are worth re-checking now: which way the Fed is leaning, and whether the AI spending boom is still showing up in earnings. Those were the tells that separated 1998 from 2022.
The history and the two scenarios we laid out in January follow, so you can hold them up against what 2026 has actually done.
The Presidential Cycle Effect
The presidential cycle is one of the most widely followed seasonal patterns in the stock market. Yale Hirsch, founder of the Stock Trader's Almanac, popularized it in the late 1960s. On average, the pre-election year (Year 3) has been the strongest for the S&P 500 and the midterm year (Year 2) the weakest.
S&P 500 average annual returns by presidential cycle year, 1928 to 2024
The usual explanation is political incentives. Presidents tend to push painful policies early in a term and save stimulus for the run-up to the next presidential race, so the first two years bring more policy fights and uncertainty.
Averages hide a wide spread, though. Some midterm years have brought steep losses and others strong gains, so the useful question isn't just whether it's a midterm year. It's which kind of midterm year you're in.
Why 2026 Is Different: The 3-Year Streak Factor
2026 isn't just any midterm year. It followed three straight years of double-digit gains for the S&P 500 (2023, 2024 and 2025), and that setup is rare.
Years that followed three straight double-digit years for the S&P 500 (total return), midterm years highlighted
Since 1928, four midterm years have followed a streak like this one: 1946, 1966, 1998 and 2022. Only 1998 kept climbing. The two modern cases make the clearest comparison, and their outcomes couldn't have been more different:
| Factor | 1998 | 2022 | 2026 (January view) |
|---|---|---|---|
| Fed Policy | Cut rates in the fall | Hiking aggressively | Pause or cutting? |
| Inflation | Low (1.6%) | High (9.1% peak) | Moderating |
| Tech Sector | Dot-com boom | Post-bubble bust | AI boom |
| Valuations | Elevated | Elevated | Elevated |
| S&P 500 total return | +28.58% | -18.11% | Year in progress |
The year opened with AI chip stocks rallying hard, so the question in January was whether 2026 would be a 1998-style continuation or a 2022-style reversal. The answer likely depends on Fed policy and on whether the AI spending boom keeps paying off in earnings, the question behind the AI capex problem.
Two Scenarios for 2026
In January we laid out two paths for the year. Neither was a forecast. They're the two ways the 1998 and 2022 precedents could play out, with the conditions that would point to each.
🐂 Scenario A: The 1998 Repeat
If 2026 mirrors 1998, the rally continues with only brief pullbacks. The AI boom extends, the Fed stays accommodative and momentum feeds on itself.
- → Fed cuts rates or pauses
- → AI productivity gains materialize
- → Corporate earnings accelerate
- → Global liquidity expands
🐻 Scenario B: The 2022 Echo
If 2026 rhymes with 2022, the long bull run runs out of steam. Mean reversion kicks in, and elevated valuations compress as growth disappoints.
- → Inflation re-accelerates
- → Fed forced to hike again
- → AI hype exceeds reality
- → Credit conditions tighten
⚠️ The 2022 Warning
Three of the four midterm years that followed a streak like this one ended lower: 1946, 1966 and 2022. Between the two modern cases, the clearest difference was the direction of Fed policy: cutting in 1998, hiking hard in 2022.
The Midterm Year Timeline: When Volatility Has Tended to Hit
Timing matters as much as the outcome. On average, midterm years have followed a recognizable seasonal shape:
Typical S&P 500 path in midterm election years versus other years
Policy noise builds as the campaigns start. Early-year gains have often faded by spring.
Weakness has tended to deepen into early summer. On the average path above, the low comes in June.
The low for the year has often landed somewhere between summer and early October, which has historically made this a better time to add exposure than the first half.
Once the result is known, uncertainty fades. The final quarter of the midterm year has historically started the strongest stretch of the four-year cycle.
How Options Traders Can Use Election Volatility
The summer window has passed for 2026, but the same tools apply to the weeks around the vote and the months after it. Every idea below assumes two house rules: risk 1 to 2% of the account per trade, measured as the trade's max loss, and roll a trade once at most, or not at all.
1. Sell Premium When Implied Volatility Is Up
Election uncertainty can lift implied volatility, and richer premiums favor option sellers. Put credit spreads, call credit spreads and iron condors let you collect that premium with a defined max loss: the spread width minus the credit received (on an iron condor, the wider wing minus the total credit). Positions 30 to 45 days from expiration are a common choice. Mind the event itself: implied volatility often eases once the result is known, and a surprise result can gap the market through a short strike, which is why the 1 to 2% sizing rule matters most around the vote.
2. Buy Weakness With Cash-Secured Puts
If there's a stock or ETF you'd be glad to own at a lower price, cash-secured puts pay you a premium while you wait. If the stock is below the strike at expiration, you'll likely be assigned and buy 100 shares at the strike, with the premium lowering your cost. This is not a defined-risk trade: you need the full cash to buy the shares, and if the stock keeps falling, you carry the whole decline below the strike, less the premium. Size it with that full amount in mind, not just the premium. Only sell puts on names you actually want at that price. Our free cash-secured put scanner can help you screen candidates.
3. Position for the Post-Midterm Period
The post-midterm record is why many traders lean bullish once the vote is in. History isn't a guarantee, so keep the risk capped: a put credit spread below the market, a bull call spread or a longer-dated call (LEAPS). On the last two, the most you can lose is the premium you paid, so size that premium to the 1 to 2% rule.
4. Manage the 2022 Risk
The streak history leans bearish, so keep the downside case alive until the vote is behind us, and know your exit before you enter. If a trade goes against you, you get one roll at most: roll once, and if the rolled trade is threatened again, close it. In our record of 88 rolled put credit spreads, 72 came out carrying more risk than they went in with.
The Bottom Line
The presidential cycle says midterm years tend to be soft and the year after tends to be strong. The 2026 setup adds a twist: midterm years that followed a streak like this one have usually ended lower, with 1998 the exception. Neither tells you what the next five weeks will bring.
What they do tell an options trader: expect volatility around the vote, get paid for it with defined risk, and keep every trade small enough that a surprise is survivable.
Midterm Election Volatility FAQ
When are the 2026 midterm elections?
The 2026 US midterm elections are on Tuesday, November 3, 2026. All 435 House seats and roughly a third of the Senate are on the ballot, along with 36 races for governor.
Do stocks go up after midterm elections?
Historically, yes. The S&P 500 has been higher 12 months after every midterm election since 1950. That's a small sample and a pattern, not a law: it says nothing about the path in between, and past performance doesn't guarantee future results.
Does market volatility rise before elections?
Often, yes. Options that expire just after an election tend to carry extra implied volatility, because the date is known but the result isn't. That event premium usually drains out once the result is in, much like the drop in implied volatility after an earnings report.
Why do midterm election years underperform?
Policy uncertainty tends to peak, and the president's party usually loses seats in Congress, which raises the odds of gridlock. Stimulus also tends to be saved for Years 3 and 4, ahead of the next presidential race.
Should I sell before the midterms?
Not necessarily. Midterm years have been weaker on average, but timing the market is hard. A sounder approach is to stay invested, lean on defined-risk trades while uncertainty is high, and keep each options trade's max loss to 1 to 2% of the account.
What makes 2026 different from a typical midterm year?
2026 followed three straight double-digit years for the S&P 500 (2023, 2024 and 2025). Since 1928, only four midterm years have followed a streak like that: 1946, 1966, 1998 and 2022. Only 1998 kept rising, and the outcome this time likely depends on Fed policy and whether the AI rally can continue.
Trade the Cycle With Defined Risk
Our free ebook walks through put and call credit spreads, the defined-risk trades this post leans on. Every CFU alert is posted in real time with the risk stated, and every closed trade goes into our audited record.
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