Worried about the midterms? Heres how smart investors play them every time

One of my favorite stock market phenomena happens every four years, and it’s scheduled once again for this fall: midterm elections and the gridlock – sweet gridlock – that can spark a nice bull run afterwards. Yes, the congressional midterms routinely create an increasingly gridlocked legislature that accomplishes relatively little.This may not be welcome for whoever’s running Washington, but historically, it has proven to spark the most consistently positive nine-month cycle for US and foreign stocks.It all starts in October, so don’t let all of the noise over inflation, oil and war distract you from missing out on this party.My bullish 2026 forecast noted how big, controversial legislation always happens during the first two years of a given White House term.

Presidents know they’ll lose some of their power after the midterms, so they push their biggest, most “important” bills early on.Always.  Stocks often waver then.

Big legislation creates winners and losers, spiking political uncertainty and risk aversion.Presidents’ first two years have each been positive only about 60% of the time throughout history – not bad, but below average. Presidents’ second years bring midterm campaigns.

Shrill, extremist rhetoric grabs headlines as candidates play to their bases to win primaries – spooking stocks.This partly explains why the S&P 500 is historically positive in only 46%, 58% and 60% of midterm years’ Q1s, Q2s and Q3s, respectively (through this June).Then it comes.

Since 1914, when the 17th Amendment mandated direct Senate elections, the president’s party shed House seats in 89% of midterms, averaging 30 lost – and 71% of Senate midterms, averaging 4 seats lost.It only takes one chamber down in this double-barreled blast to increase gridlock.Accurate stock data start with 1925.

Since then, the S&P 500 gained in 84% of midterm year Q4s and 92% of the nine-months stretches that began with those quarters – together averagi...