Before the election, I wrote a piece, When Politics and Portfolios Collide, about why politics can influence markets without determining investment strategy. The election is now behind us, but the same principle applies: an election result is information, not an investment conclusion.
History Offers Perspective
While the recent market pullback has been sharp, history offers useful perspective. Since 1933, the S&P 500 has delivered positive average returns across the election cycle. As the chart in my earlier piece showed, the S&P 500 has averaged an 8.6% total return during midterm election years. Excluding 2002 and 2008, two years shaped by significant economic and market disruptions beyond the election cycle, that average rises to 10%.
History is no guarantee of what comes next, but political uncertainty has not historically prevented markets from moving higher over time.
Fundamentals Have Held Up
Corporate fundamentals also remain supportive. According to FactSet Earnings Insight, third-quarter S&P 500 earnings growth is running at 30.2%, while the index’s forward P/E of 18.7 times is below both its five- and 10-year averages.
The economic backdrop has also remained resilient, with initial jobless claims recently falling to 189,000, matching the lowest level since 1969. That doesn’t mean volatility is behind us, but so far, the underlying fundamentals have held up.
Sources: FactSet Research Systems Inc., Earnings Insight, October 30, 2026. S&P 500 earnings and valuation data. U.S. Department of Labor, Unemployment Insurance Weekly Claims, November 5, 2026; Reuters, November 5, 2026. Initial unemployment claims and historical comparison.
There Isn’t One “Election Trade”
The market response is also a reminder that the same election result can mean different things across asset classes. Stocks may focus on growth and corporate earnings, while bonds weigh inflation, government spending and interest rates. The dollar and gold respond to many of those same forces in different ways.
There isn’t one “election trade.” What looks favorable for one part of a portfolio may look very different for another.
What Actually Changes?
Election results tell us who will govern, but not which campaign proposals will become policy, how quickly they might advance or how they may change along the way.
AI and data-center development are good examples. Federal, state and local policy could influence where, how quickly and at what cost investment takes place. But for investors, the bigger question is whether the extraordinary capital flowing into AI ultimately translates into sustainable earnings and cash flow. Underlying demand remains significant, but delays in data-center development could mean it will take longer for that investment to produce adequate returns.
Thursday’s selloff illustrates that distinction. Much of the decline reflected concerns that data-center development could slow, rather than a sudden deterioration in earnings or economic growth.
Markets can reprice risk quickly. Fundamentals generally change more gradually.
The same applies to fiscal policy. Divided government may make major new spending initiatives more difficult, but actual spending decisions will matter more than the political debate around them. Deficits, Treasury yields and interest rates will continue to reflect forces well beyond politics.
Washington is only one part of the investment picture. Inflation, economic growth, corporate earnings and valuations will continue to matter regardless of the political backdrop.
The Challenge of Market Timing
Reacting to an election also creates a timing problem. Stepping out of the market requires getting two decisions right: when to leave and when to return. That is especially difficult because some of the market’s strongest days have historically occurred close to its weakest ones.
J.P. Morgan’s Asset Management analysis found that missing just the 10 best market days over the past two decades would cut a portfolio’s value roughly in half. Markets often begin recovering before the outlook feels comfortable, making an exit and reentry particularly difficult to time.
Source: J.P. Morgan Asset Management, Guide to the Markets, 2026. S&P 500 returns and market timing analysis.
Has Enough Changed to Change the Plan?
There will be plenty to watch as policy takes shape. But not every market reaction changes the longer-term investment case.
The election is over. Now we watch what actually changes.
