Will the midterm elections cause the US stock market to crash? 75 years of history give an unexpected answer

According to Zhitong Finance APP, despite several of the most significant market shocks in history during Trump's tenure, it is undeniable that the Dow Jones Industrial Average, S&P 500 Index, and Nasdaq Composite Index all achieved extraordinary returns under Trump's administration.

The Trump bull market was driven by multiple factors: the evolution of artificial intelligence (AI), corporate earnings surpassing expectations, and a record-breaking wave of stock buybacks fueled by the Tax Cuts and Jobs Act—which permanently lowered the top corporate marginal income tax rate from 35% to 21%. However, history shows that bull markets are not endless, and catalysts are always lurking to trip up the stock market.

Currently, with less than eight weeks until the midterm elections, one of Wall Street’s biggest uncertainties looms. On November 3, American voters will head to the polls or mail in ballots for the 2026 midterm elections. Although Trump's term continues until January 20, 2029, the composition of both chambers of Congress remains uncertain until early January 2027.

Will a reshuffling of Congressional power cause a stock market crash? Looking back over 75 years of history, the answer is surprising, and ultimately leans optimistic.

A Congressional Reshuffle Expected in November

Currently, the Republican Party controls a unified government. In addition to holding the White House, they also have 53 seats in the Senate (out of 100) and 218 seats in the House of Representatives (out of 435).

This "unified government" makes passing major legislation much easier. In both of Trump’s non-consecutive terms, the first two years were periods of unified government. This allowed him to sign two massive tax and spending bills into law.

The aforementioned "Tax Cuts and Jobs Act" (December 2017) permanently lowered the top corporate marginal tax rate, while the "Big and Beautiful Act" (July 2025) made the personal tax rates from the Tax Cuts and Jobs Act permanent.

If Republicans lose control of one or both chambers of Congress, passing major legislation will become much more difficult, or even come to a standstill. This would also complicate debt ceiling negotiations, which could lead to government shutdowns. Although previous shutdowns haven't caused stock market crashes, they have increased short-term uncertainty.

According to prediction markets, the probability of Democrats gaining seats and retaking one or both chambers of Congress in November 3 is very high. Polymarket odds as of September 13 show a 53% chance for Democrats to win both chambers; the probability of Democrats taking the House and Republicans holding the Senate is 34%. In any case, the odds strongly suggest a Congressional reshuffle in 52 days.

Additionally, historical patterns show the incumbent president's party almost always loses seats in the midterm elections. In the past 23 midterm elections, the party occupying the White House lost seats 20 times.

The reason for a stock market crash is simple: political gridlock caused by a restructuring of Congressional power. But 75 years of history tell a different story.

Midterm Elections Bring Volatility, but the Sixth Year of a Second Term Hides Major Turning Points

During Trump's tenure, volatility was nothing new. The five-week Covid-19 plunge from February to March 2020, and the early April 2025 tariff turmoil, caused record short-term percentage swings for the Dow Jones Industrial Average, S&P 500 Index, and Nasdaq Composite Index.

Statistically, midterm election years are known for heightened uncertainty and greater market drawdowns.

Last November, Carson Group Chief Market Strategist Ryan Detrick posted a set of data on X, examining the peak-to-trough declines for the benchmark S&P 500 Index in midterm election years. Since 1950, the average pullback in midterm election years has been 17.5%, which is a substantially larger drawdown compared to the other three years of the presidential cycle.

While this may not sound like good news, Detrick pointed out in another X post that there is a significant difference in stock market performance between the second and sixth years of a presidential term.

Looking back over 75 years, six presidents (including Trump) have been elected for two full terms (excluding Richard Nixon, who was removed from office in August of his sixth year). The second year, while risky— the S&P 500 Index declined during Bill Clinton, George W. Bush, and Donald Trump's tenures— every two-term president’s sixth year saw gains.

Since 1950, the S&P 500 Index has averaged a gain of nearly 21% in the sixth year of a two-term presidency. For additional context, as of last Friday’s close, the S&P 500 is already up 11.85% for the year.

If this trend continues in 2026, it will likely be due to two factors.

First, from an investment standpoint, political gridlock may be seen as a positive. While a divided Congress adds uncertainty to debt ceiling negotiations, it prevents major new legislation, introducing a degree of certainty that Wall Street and investors generally welcome.

Second, the importance of AI infrastructure construction outweighs the midterm elections. The latter has a bigger impact on households, but the building of AI data centers, combined with consistently better-than-expected earnings, have laid the foundation for one of the strongest bull markets in history.

While a U.S. stock market crash is still possible this year, history suggests that the midterm elections are unlikely to be the trigger.