Prediction markets favor a Democratic takeover of Congress, while past S&P 500 returns have varied sharply with the party mix in Washington. The history points to risk, not a dependable forecast for investors.
In Retirement Researcher's 1926 to 2023 comparison, the S&P 500's average annual return ranged from 7.33% to 16.63%, depending on which party held the presidency and control of Congress. The pattern tells us what happened in those years. It does not predict what stocks will do after the 2026 midterms.
A Democratic sweep on Nov. 3 would match the congressional outcome linked to the lowest average return in that comparison. Prediction-market traders give Democrats a 61% chance of taking both chambers. They put the odds of a Republican sweep at 8%.
The history offers context, not a reliable forecast. Election results can affect taxes and fiscal policy, but average returns under different party arrangements do not prove that Congress caused those returns.
JPMorgan market-strategy data show that from 1945 through 2025 the S&P 500 averaged about 3.8% in midterm-election years, compared with 10.9% in other years.
What the historical returns show
Retirement Researcher calculated average annual S&P 500 returns for 1926 to 2023, grouped by the party that held the presidency and whether Congress was unified or divided. The top result came under a Democratic president and a split Congress: 16.63% over 15 years.
Unified Republican control ranked second, with an average return of 14.52% over 13 years. Unified Democratic control followed at 14.01% over 36 years.
The lowest average came under a Republican president with a divided Congress. The index returned 7.33% a year on average over 34 years. These are historical figures across different market conditions. They do not tell us what the index will return during Trump's current term or after the midterms.
The sample sizes vary. The unified Republican figure covers 13 years, compared with 36 years under unified Democratic government and 34 years with a Republican president facing a split Congress. The ranking is worth noting. The smaller Republican sample makes it a poor basis for a precise election forecast.
That limit matters.
As the Nov. 3 midterms approach, markets are also weighing the start of earnings season and an upcoming Federal Reserve meeting. The election will determine which party controls Congress.
Congress can change fiscal policy
When one party controls both chambers, a president may find it easier to pass major legislation. Under unified Republican control, Congress passed the Tax Cuts and Jobs Act (TCJA) in December 2017. The law permanently cut the top marginal corporate income tax rate from 35% to 21%, its lowest level since 1939.
Companies kept more income after the tax cut, and stock buybacks increased. Earnings per share got a boost.
Trump also won a second major tax overhaul, the "Big, Beautiful Bill," during a period of unified government. The law made the TCJA's personal tax brackets permanent and introduced temporary tax breaks for calendar years 2025 to 2028. The effect of a policy on stock prices depends on what it does to businesses, earnings, government finances and investor expectations. Party control alone cannot answer that question.
As of Sept. 28, Polymarket traders put the chance of Democrats retaking both chambers at 61%. They gave Republicans a 31% chance of keeping the Senate while Democrats retake the House. The chance of a Republican sweep stood at 8%.
A separate midterm-market analysis found a modest historical drag, most closely linked to a full Democratic sweep. These odds reflect market expectations. They are not election results or guarantees about stock performance.
Long-term returns need perspective
Even the weakest political arrangement in Retirement Researcher's comparison produced an average annual S&P 500 return of 7.33%. That figure was higher than the average long-term annual returns for gold, silver, oil, real estate and Treasury bonds.
The comparison is not like-for-like. It does not adjust for inflation or account for each asset's risks. Nor does it show what an investor earned after fees and taxes.
Crestmont Research looked at a different time frame. Its analysis covered 107 rolling 20-year periods for the S&P 500, including dividends, from 1900-1919 to 2006-2025. Every period had a positive average annual return.
The S&P 500 began in 1923. For earlier periods, Crestmont tracked the index's components in other major indexes. The finding applies to those past 20-year windows. It does not guarantee a positive return in every future period.
Earnings may offer a more direct clue to stock performance than party control. Bank of America found that earnings per share rose in 68% of the years when the S&P 500 rose, in its analysis of market gains since 1936. Among those positive market years, 54% came with a Democratic president and 46% with a Republican president, according to a Bank of America market review.
Other strategy summaries put the average 12-month S&P 500 return at about 11% under divided government and 8% under unified government. The figures show how historical comparisons can shift with the time periods and definitions researchers use.
Political control can change the path of legislation. A divided Congress may also make debt-ceiling talks harder. In its Oct. 2 market outlook, Reuters said investors were also watching the start of earnings season and an upcoming Federal Reserve meeting as the November midterms approached.
Election-linked averages cannot tell investors when to buy or sell. A past pattern is not proof of cause and effect. Midterms may change fiscal-policy prospects and short-term market expectations, but investors should keep that risk in perspective. A congressional outcome alone is not a market signal.
Time matters. Risk remains.
A 20-year return record says something about the effect of time, not the absence of risk. Stocks can fall sharply along the way. A long horizon offers little help to someone who must sell during a downturn.
The historical record argues against judging a portfolio by one election cycle. It does not remove the need to match investment risk to when the money may be needed.
