Midterm Elections: Why Investors Should Follow Data, Not Headlines

The votes have been cast, and another midterm election is behind us. But if you’ve been following the news, you’ve probably noticed something.

The political noise hasn’t necessarily gotten any quieter.

Leading up to Election Day, we heard plenty of predictions about what might happen to the stock market depending on which party won or lost. Now, the conversation shifts to what the results could mean for the economy, government policy, and your investments.

Some headlines will point to opportunity. Others will warn of challenges ahead. But here’s an important question: Should political headlines really determine how we invest? History offers some valuable perspective.

What History Tells Us About Midterm Elections

Markets don’t particularly like uncertainty, and elections create plenty of it. In the weeks leading up to an election, investors attempt to anticipate potential changes to taxes, government spending, regulations, and economic policy. The challenge is that much of this speculation revolves around outcomes that haven’t happened and policies that may never become law.

Interestingly, historical market behavior surrounding midterm elections reveals a pattern worth understanding. Research from Goldman Sachs Asset Management, examining midterm elections dating back to 1994, shows that stock market volatility has generally increased ahead of elections, often peaking approximately one month before Election Day. However, once the election passes, volatility has historically declined, while stocks have tended to rally in the months that follow.

In other words, the uncertainty leading up to an election has often created more anxiety than the election itself.

Of course, history doesn’t guarantee that markets will follow the same path this time. Every election occurs against a different economic backdrop, with its own challenges and opportunities. Still, the historical pattern reminds us that uncertainty is often temporary, and markets eventually return their attention to what matters most: the fundamentals.

Markets Don’t See Red or Blue. They See Green.

There’s a phrase I often share with investors: Over the long term, markets don’t see red or blue. They see green. And by green, I mean profitability. Regardless of which political party controls Washington, businesses still need to generate earnings, grow revenue, manage expenses, and create value for shareholders.

A successful company doesn’t suddenly stop selling products the day after an election. Consumers don’t automatically stop spending, and innovation doesn’t come to a halt. Now, elections certainly matter. Government policies can influence economic growth, corporate profitability, and financial markets. A divided government, for example, can make significant legislative changes more difficult to pass.

But understanding an election outcome is only one piece of a much larger puzzle. Investors must also consider which policies will actually become law, how businesses will respond, and whether markets have already priced in those expectations. That’s a lot of assumptions to build an investment strategy around.

Data Over Narrative

One of the greatest risks investors face isn’t necessarily market volatility itself. It’s how they respond to it. We all have political preferences, but allowing those preferences to influence investment decisions can lead to costly emotional reactions. It’s natural to feel more optimistic when your preferred party wins or more concerned when it loses. But neither reaction necessarily tells us whether stocks are attractively valued or whether corporate earnings are improving.

Instead, we believe investors should focus on questions grounded in evidence. Are corporate earnings improving? Is the economy growing? What are inflation and interest rates telling us? Are stock valuations supported by underlying business fundamentals? And perhaps most importantly, has something fundamentally changed that justifies adjusting our investment strategy?

These questions deserve far more attention than the latest political prediction or post-election reaction.

What Does This Mean for Your Portfolio?

At Hobart Wealth, the midterm election itself does not change our longer-term investment outlook. That doesn’t mean we’re ignoring what happened in Washington. We’re monitoring potential policy developments and evaluating how they could influence the economy and financial markets. But we’re not making portfolio decisions simply because one political party gained or lost influence.

For investors approaching or already enjoying retirement, this distinction is especially important. Your financial plan wasn’t designed around a single election cycle. It was built around your retirement goals, income needs, risk tolerance, and the role your investments must play over many years. Those priorities shouldn’t change simply because the political landscape has shifted. If economic conditions, corporate earnings, or market fundamentals materially change, we’ll evaluate the evidence and adjust where appropriate. That’s disciplined investment management.