If you scroll through social media or have turned on the news lately, you may have noticed that a lot more politicians are talking.
With the 2026 midterm elections now just over two months away, Washington is becoming increasingly active. Candidates are campaigning, big money is being spent on political ads, and issues ranging from taxes and spending to healthcare, trade, and the economy are taking center stage. So why should we care as investors?
Midterm election years have historically been more volatile for investors. Since 1945, the S&P 500 has averaged a 3.8% price return during midterm years, compared with 10.9% during the other three years of the presidential cycle. Midterm years have also experienced larger average drawdowns. Of course, this does not mean the market is destined for a poor year.
Instead, it reflects a pattern we see repeatedly in markets: uncertainty often creates volatility.
As Election Day approaches, investors face more questions. Who will control Congress? What could happen to taxes or government spending? How might the next Congress approach trade, healthcare, energy, or other areas of the economy?
Markets do not need to know the answers immediately. But they do have to account for the range of possible outcomes, and that uncertainty can make markets noisier.
And we’re already seeing plenty of reasons for investors to pay attention. Politics is not the only source of uncertainty facing markets today. Investors are also watching inflation, interest rates, oil prices, the Federal Reserve, geopolitical tensions, and corporate earnings.
The result is a market that has continued to perform well while still carrying meaningful underlying risk. The S&P 500 gained approximately 3% in August, while the Nasdaq gained more than 4%. Yet the start of September brings a few potential catalysts, including the August employment report, inflation data, Federal Reserve expectations, and continued developments in the Middle East.
At the same time, one measure of market fragility recently reached its highest level since late 2024. The measure is designed to identify periods when markets could be more vulnerable to a sharp move if an unexpected event occurs. In other words, a calm market does not necessarily mean a risk-free market.
However, there is an encouraging pattern for long-term investors. Historically, some of the uncertainty surrounding midterm elections tends to diminish once the election passes and investors have greater clarity about the political landscape.
In all previous cycles, the market has eventually shifted its attention back toward the fundamentals: economic growth, corporate earnings, inflation, and interest rates.
We should expect the political conversation to become louder over the next several months. There will be polls, predictions, campaign promises, debates, and plenty of headlines suggesting that the next election will determine the future direction of the economy and the stock market. Some of those headlines will matter. Most will not.
And with technology, investors can buy and sell in fractions of a second. This is a positive if you need liquidity. However, you may sometimes pay the cost of participating in an irrational market swing as investors (and algorithms alike) try to digest unanticipated news. The benefit of long-term investing often comes with the requirement of having the mental fortitude to withstand irrational/unpredictable market swings, similar to what we have seen over the past several years.
So what should investors do?
Our advice remains consistent with what we have said during previous periods of heightened volatility: don’t confuse more headlines with more information.
A portfolio should not be positioned based on which political party is expected to win an election. Nor should investors attempt to move in and out of the market every time a new poll or political announcement changes the perceived odds of an outcome.
Instead, this is a good time to ask a few practical questions: Does your current allocation still match your risk tolerance? Have your financial goals changed since your portfolio was last reviewed? Is your financial plan still built to withstand periods of market volatility?
Those questions are far more actionable than trying to predict November.
The midterm elections will come and go. Political headlines will continue to change. Markets will rise, fall, and occasionally do both within the same week. Our job as investors isn’t to predict every headline. It is to build portfolios and financial plans that can withstand them.
As we move closer to Election Day, we expect the political noise to increase. We also expect volatility to occasionally follow. That’s not necessarily a reason to step away from the market. It is a reminder of why a disciplined investment strategy matters in the first place.