Midterms 2026: What History Says (and Doesn’t Say) About the Market

by Yoann Forlini | Oct 12, 2026 | Macro & Politics, Unfiltered | 1 comment

On November 3, 2026, Americans vote to renew the House of Representatives and one third of the Senate, and most market participants are already betting on a Democratic victory followed by a rally. That bet rests on real numbers, but those numbers describe a historical average, not a trigger. This article separates what is established from what is intuition.

I address three questions. What does history say about the S&P 500 around midterms? Is an impeachment-and-removal of Donald Trump realistic if the Democrats win? And, for a short-term options trader, what should be watched between October 26 and November 6?

The facts: a 53-47 Republican Senate and Democratic favorites

The vote takes place on Tuesday, November 3, 2026. All 435 House seats and 35 Senate seats are at stake. The Senate currently has 53 Republicans and 47 Democrats (or Democratic-aligned senators), and the House has a Republican majority.

According to the Polymarket prediction market, the implied probabilities at the time of writing are as follows.

Scenario	Implied probability
Democratic sweep (House and Senate)	63%
Democratic House, Republican Senate	29%
Republican sweep	9%

Bar chart: Polymarket odds of 63% for a Democratic sweep, 29% for a Democratic House with a Republican Senate and 9% for a Republican sweep — Implied probabilities of the midterm outcome. Source: Polymarket, October 2026.

These percentages are market odds, not official forecasts, and they move every day. They rest on a Democratic lead of roughly 7 to 8 points in generic ballot polling, with Donald Trump’s approval around 37%, according to an aggregator whose data show internal inconsistencies. Those last two figures should therefore be cross-checked before being cited as established.

To retake the House, the Democrats need a net gain of about 5 seats. For the Senate, they need 4. The House is therefore the realistic objective, and the Senate the real gamble.

What history says: a weak year, then a rebound

The pattern is solid: midterm years tend to be mediocre, and the twelve months following the vote tend to be good.

Measure	Figure	Source
Average S&P 500 return over the 12 months after a midterm (since 1950)	+15.1%	Capital Group
Average return in a midterm year (since 1931, excluding dividends)	+4.7%, versus +9.5% for other years	Capital Group
Calendar year following a midterm	about +14.5%, positive 95% of the time	Fidelity, cited by The Motley Fool
October and November of a midterm year (since 1950)	about +3% and +2.7%, positive more than 70% of the time	Carson Group, cited by The Motley Fool

Bar chart: average S&P 500 return of +4.7% in a midterm year, +9.5% in other years and +15.1% in the 12 months after a midterm — Average S&P 500 return by period. Source: Capital Group.

The mechanism usually invoked is simple: political uncertainty weighs on prices before the vote and fades once the result is known. The average return thus clearly exceeds that of other periods.

Three caveats apply. First, these are averages over a full year: they say nothing about the session of November 4. Second, these results do not depend on the winning party: history does not predict that a Democratic victory will be better than a Republican one. Third, the rebound may already be partly priced in: an S&P 500 index fund (VOO) was up about 13% since January at the end of the third quarter of 2026.

One last figure, to be treated with caution: according to a study cited by Saxo, divided government has historically delivered about +14.3% a year for the S&P 500, versus about +9.6% under single-party control. Markets often appreciate legislative gridlock, because it removes the risk of major reforms.

The three scenarios and their sector effects

The sector effects below come from a Saxo investor guide, a commercial document that cites third-party studies. They describe past trends, not certainties.

Scenario	Plausible market effect
Democratic House, Republican Senate	Divided government: fewer major reforms, but risks of budget deadlock, debt-ceiling fights and a shutdown. Rather favorable to defense, financials and industrials.
Democratic sweep	More oversight of AI, financial services, crypto and private equity, and tax cuts possibly delayed. Historically, financials (about −13.8% at six months) and healthcare (about −17.3%) have underperformed, while energy has held up well.
Republican sweep	Fiscal and regulatory continuity, rather favorable to financials, AI and energy. The least likely scenario, and therefore the one that would surprise the most.

One underlying caveat: the same guide estimates that AI, oil, interest rates and tariffs will weigh more on equities in the short term than the election result itself. Since a Democratic sweep is the markets’ central scenario, it is largely priced in already. The real risk is the surprise: a Republican sweep, or a House that does not flip.

Impeachment: indictment is possible, conviction is nearly impossible

Two stages must be distinguished. Impeachment is decided by a simple majority of the House, that is 218 votes out of 435. Conviction and removal require two thirds of the Senate, that is 67 votes out of 100.

A Democratic House could therefore start the process, but the newly elected members only take office on January 3, 2027. Even with 51 senators, the Democrats would need 16 additional Republican votes. Donald Trump has already been impeached in 2019 and 2021, and acquitted by the Senate each time. If removed, Vice President JD Vance would become president: the presidency would not pass to the Democrats.

On public opinion, a Newsweek article of April 24, 2026 reports a Verasight poll showing 55% support for impeachment and 37% opposition, but only 21% support among Republicans. Prediction markets then gave 13% odds of an impeachment before January 1, 2027 (Kalshi), and 65% before the end of the term (Polymarket). These figures are several months old and may have changed.

What history says about the market

The two precedents of an impeachment process do not give the same answer, which shows that the process is not the determining factor.

Nixon (1974): the S&P 500 lost 13% between the start of the proceedings in May 1974 and the resignation on August 9. But the market was already down 23% from its 1973 highs and the recession had begun in November 1973. Source: Fortune.
Clinton (1998-1999): the S&P 500 gained more than 20% a year from 1996 to 1999. The decline of about 20% in the fall of 1998 came from the Russian default, not from the proceedings. Source: Fortune.

The 0DTE trader’s angle: volatility matters more than direction

This section is my own analysis, not investment advice. For a very short-dated options trader, the question is not only whether QQQ or SPY will rise after November 3. It is how much one pays to bet on it.

Before a binary event, implied volatility tends to rise, because option prices build in the uncertainty. Once the result is known, it often drops sharply: this is the IV crush. A trader who buys a call the day before can be right on direction and still lose, because the premium contracts faster than the underlying rises.

A three-step watch calendar seems relevant to me.

October 26 to November 2: monitor implied volatility, the VIX, the VXN (Nasdaq 100 volatility) and gamma positioning, meaning the call wall and put wall levels. Observe whether the market has already paid dearly for protection.
November 3: a large share of the results arrives overnight between November 3 and 4, Lisbon time. Futures (ES and NQ) react before the U.S. open.
November 4 to 6: look for confirmation rather than anticipation: a resistance break on solid volume, persistent buying flows, gamma turning favorable, and 10-year Treasury yields that do not work against the rally.

The classic trap remains “buy the rumor, sell the news.” If a Democratic victory is the markets’ central scenario — 63% for a sweep according to Polymarket — it is largely in the prices, and its realization can trigger profit-taking. When gamma is negative, these moves can be amplified, because market makers must hedge in the direction of the move.

Conclusion: a favorable probability, not a certainty

History argues for a rebound after midterms, with about +15% on average over twelve months since 1950, but it does not say that a Democratic victory would be the cause. An actual removal of Donald Trump is very unlikely, because it would require 67 Senate votes. The main risk for a trader is not the Democratic victory, already widely anticipated, but the surprise and the collapse in volatility that follows the vote.

Risks to keep in mind: an unexpected Republican sweep, a rebound already partly priced in, historical averages that mask wide dispersion, and macro factors (AI, oil, interest rates, tariffs) that can weigh more than the election.

Sources

This article is for information only and does not constitute investment advice. Options trading involves a high risk of loss.