Author: Deep Tide TechFlow

Deep Tide Briefing: Behind the noisy political campaigns, capital markets are moving along the deeper wheel of quantitative history. A CNBC review of the S&P 500’s performance from 1980 to 2024 shows that in all 11 U.S. midterm elections over the past 40 years, U.S. stocks rose in the year after the election, with an average gain of 13.7%.

Even more striking is the market premium associated with checks and balances. Historically, a “divided government,” in which the White House and Congress are controlled by different parties, has delivered more substantial gains than a unified government in which one party holds all the power. With an average one-year return as high as 15%, it is seen by Wall Street institutions as the ideal scenario for minimizing policy uncertainty.

Despite a rare 100% historical win rate, major investment banks remain rationally cautious amid today’s complex macroeconomic shifts. With multiple variables intertwined—including divergence among AI stocks, rising global bond yields, and uncertainty surrounding the Federal Reserve’s rate-cut path—policy maneuvering is taking a back seat. The real determinants of success remain corporate earnings and liquidity conditions.

11 Post-Election Wins in 40 Years: S&P 500 Gains 13.7% on Average

According to CNBC, an in-depth analysis of U.S. stock market performance from 1980 to 2024 found that the S&P 500 rose in the year following all 11 midterm elections held between 1982 and 2022—a rare 100% historical win rate.

In terms of quantitative returns, U.S. stocks gained an average of 13.7% in the year after midterm elections, nearly matching the 13.8% average return in the year after presidential elections. Once the election results were in, the political uncertainty that had long hung over capital markets was effectively cleared, significantly boosting institutional investors’ risk appetite.

The regularity of the political cycle resets the flow of capital. Ahead of elections, uncertainty around policymaking and legislation often prompts investors to move into safe-haven assets or holds down market valuations. But once the votes are counted, clarity on the policy outlook—regardless of which party controls Congress—becomes a key catalyst for valuation recovery and a repricing of risk assets.

Checks and Balances Bring Certainty: One-Year Returns Reach 15% Under Divided Government

Amid complex patterns of party control, the data reveal capital markets’ particular preference for checks and balances. Across 10 midterm elections and 5 presidential elections that resulted in a “divided government” (where one party controls the White House and the opposing party controls at least one chamber of Congress), the S&P 500 gained an average of 15% over the following year.

Even more striking, 14 of the 15 historical cases of divided government ultimately produced positive returns, indicating a high degree of consistency. By contrast, when elections resulted in unified government, with one party controlling both chambers of Congress and the White House, the average gain for U.S. stocks in the following year narrowed to 11.5%, significantly reducing the excess return.

Take the three elections in 1986, 1990, and 2006, when Democrats controlled both chambers of Congress and Republicans held the White House. The S&P 500 dipped 0.5% on the first day after the results were announced, but rebounded by an average of 3.4% a month later and gained an average of 10.9% after a year—evidence that legislative gridlock can effectively curb aggressive tax increases and regulatory surprises.

Economic Cycles Matter More Than Votes: Société Générale Warns of Rate Hikes and Bubble Risks

Despite the remarkably strong historical win rate, treating the political calendar as an investment talisman reveals a major blind spot. In its latest research report, Société Générale’s macro strategy team warned that Federal Reserve policy cycles, liquidity conditions, and corporate earnings cycles ultimately determine asset prices—and carry far more weight than election results themselves.

There is no shortage of historical lessons. After the 2018 midterm elections, the Federal Reserve raised rates four times that year—a rare occurrence—sending the S&P 500 down 6.2% for the year, though it gained 11.7% over the following year as hedges took effect. And in the wake of the dot-com bubble bursting in 2000, U.S. stocks plunged 22.1% in the year after the election.

By contrast, the S&P 500 surged an astonishing 38.3% in the year after the 2020 presidential election. The main driver was the Federal Reserve’s money-printing and massive stimulus programs, not simply the change in the White House. Blindly betting on a rising market while ignoring tightening macro liquidity and the risk of a systemic recession can easily lead investors into the liquidity trap of extrapolating from past trends.

AI Boom and Geopolitical Headwinds: Key Variables That Will Determine How Long the Bull Market Lasts

At today’s macroeconomic crossroads, capital markets are focused on technological transformation and real-world growth. Carson Group chief strategist Ryan Detrick says the foundations of the U.S. bull market remain healthy as long as the artificial intelligence (AI) boom continues and the economy maintains steady growth. Short-term pullbacks, he says, do little to diminish the broader upward trend.

Deutsche Bank head of macro research Jim Reid, however, takes a more cautious view. Seasonal patterns cannot determine the actual direction of markets, he says, and key risks—including tensions in the Middle East, political turmoil in France, and rising global bond yields—will not disappear when the elections are over. Investors should be highly alert to pressure on valuations.

Looking ahead, the resolution of political uncertainty offers only a tactical window for sentiment to recover. The true foundations of whether this long-term bull market can weather the storm are the ability of tech giants to turn computing infrastructure investment into returns and the sustainability of sovereign debt. Investors must look beyond political noise to stay on solid footing in an increasingly divided market.