The S&P 500 index is currently on the verge of entering the fourth quarter of 2026, a period that has historically been stronger for the stock market than other seasons. Since 1928, this index has averaged a 2.1 percent growth in each calendar quarter, while the fourth quarter has averaged a 2.9 percent gain. Although these patterns are not guarantees for repetition each year, they represent a historical benchmark for traders.
Political and Economic Risks
Midterm elections are typically associated with lower returns and greater volatility compared to other years. Since 1937, the S&P 500 has averaged a total return of 9.2 percent in midterm election years, while this figure has been 13.3 percent for non-election years. Major weakness in these years usually occurs before the elections, such that in the first quarter of midterm years, this index has shown slight negative returns.
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As election day approaches and the potential composition of Congress becomes clearer, some uncertainties diminish. Although history provides no guarantee for fourth quarter growth in 2026, it suggests that the weaknesses of midterm years often lead to stronger performance later in the year.
Factors Influencing the Market
The 2026 midterm elections are taking place under conditions where inflation remains above the Federal Reserve's long-term target, and tensions between the United States and Iran have driven up energy prices. If high fuel costs continue to contribute to rising inflation, there is a possibility that interest rates may remain high or increase. This combination could impose pressures on consumer spending, corporate profits, and stock valuations.
In September 2023, the Consumer Price Index was 3.4 percent higher than the previous year, and energy prices had increased by 16.3 percent. Voter turnout is also an important factor. In midterm elections, turnout is usually lower than in presidential elections, and this can make control of Congress more sensitive to groups that vote more.
Changes in voting procedures can create another uncertainty. Currently, U.S. citizenship is required for voting in federal elections, while each state sets its own voter identification laws. If identification requirements or citizenship documentation change before the elections, this could impact voter turnout and election management.
Finally, the current technical status of the S&P 500 index also indicates a long-term upward trend. The 50-day and 200-day simple moving averages continue to rise. The December contract is testing its 50-day moving average near 7634, while the 200-day moving average is below the market and close to 7192. This alignment suggests that market participants may view declines as buying opportunities.
History has favored the S&P 500 in the fourth quarter, and patterns have been reinforced in midterm election years. However, inflation, interest rates, U.S.-Iran tensions, and the uncertain outcome of the elections could disrupt this historical pattern.
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