To The Moon

From presidential administrations to congressional control, nearly nine decades of market history reveal a more complicated relationship between politics and stock market performance.

Does Wall Street prefer Democrats or Republicans?

It's a question that resurfaces during every US election cycle. Republicans are often associated with lower taxes and business-friendly policies, while Democrats are frequently linked to greater regulation and government spending.

But does one party actually deliver better stock market returns?

📊 Historical data suggests there is no clear winner. The S&P 500 has performed strongly under both parties, while congressional control and broader economic conditions have also played important roles.

With the November 2026 midterm elections reshaping the balance of power in Washington, here's what investors can learn from nearly nine decades of market history.

🏛️ 1. Democrats vs. Republicans: What Does History Say?

A common assumption is that Republican administrations are better for stocks because of their emphasis on lower corporate taxes and deregulation. However, historical performance does not consistently support this view.

According to J.P. Morgan Asset Management, the S&P 500 delivered:

• 📈 16.3% average annual return during Barack Obama's presidency.

• 📈 16.0% average annual return during Donald Trump's first term.

• 📊 10.3% long-term average annual return over the preceding 30 years.

Despite their different political approaches, both administrations delivered remarkably similar market performance.

💡 Why does this matter?

Stock market returns are influenced by much more than the political party occupying the White House. Other important factors include:

• Interest rates and Federal Reserve policy.

• Inflation and economic growth.

• Corporate earnings and business investment.

• Investor sentiment and market valuations.

Key takeaway: A president's political affiliation alone is not a reliable indicator of future stock market performance.

⚖️ 2. Unified vs. Divided Government: Does Congressional Control Matter?

Looking beyond the presidency, another important factor is which party controls Congress.

The US government has three major political institutions:

• The White House: The president and executive branch.

• The House of Representatives: One of the two chambers of Congress.

• The Senate: The other chamber of Congress.

When one party controls all three, it is known as a unified government. When political control is split between parties, it is called a divided government.

RBC Wealth Management examined S&P 500 performance across six different political configurations from 1953 to 2025.

📊 Average annual S&P 500 price returns by political configuration:

🔍 What stands out?

• 🥇 The highest historical average was 17.0%, under a Democratic president with a divided Congress.

• A Democratic president working with a Republican-controlled Congress followed closely at 16.3%.

• Republican unified government also recorded a relatively strong 13.3% average return.

• The weakest result was 4.9%, under a Republican president with a Democratic-controlled Congress.

Interestingly, divided government has sometimes coincided with stronger market performance.

One possible explanation is that political gridlock can make major policy changes more difficult to implement, potentially reducing uncertainty surrounding sudden legislative or regulatory shifts.

However, this does not prove that political gridlock causes stronger returns. These historical averages cover different economic environments and relatively limited periods.

🗳️ 3. The Midterm Election Effect: What Happens to Stocks Afterwards?

Midterm elections take place halfway through a US president's four-year term.

During these elections:

• All 435 seats in the House of Representatives are contested.

• Approximately one-third of Senate seats are up for election.

Historically, the president's party tends to lose congressional seats, often allowing the opposition party to gain greater influence over legislation.

For investors, this creates uncertainty surrounding taxation, government spending, trade policy and industry regulation.

But what happens to stocks after the elections?

📈 What does historical data reveal?

J.P. Morgan Asset Management found some striking historical patterns:

• 19 out of 19: The S&P 500 recorded positive returns in the 12 months following midterm elections since 1950.

• Approximately 15%: Average S&P 500 gain during those 12-month periods.

• 9.2%: Average annual return during midterm election years.

• 13.3%: Average annual return during non-midterm years.

The figures reveal an interesting pattern: markets have historically performed better in the year following midterm elections than during the election year itself.

J.P. Morgan also found that the fourth quarter of midterm election years delivered an average return of 6.6%, despite weaker average performance during the preceding three quarters.

💡 Why does this happen?

Election uncertainty can make investors more cautious ahead of voting. Once the results become clearer, markets may have a better understanding of the political and regulatory environment.

However, this pattern is not guaranteed to repeat. Interest rates, inflation and economic conditions can still outweigh election-related developments.

4. 🇺🇸 The 2026 Midterms: A New Political Balance in Washington

The November 3, 2026 midterm elections have produced a significant shift in US political control.

Democrats have secured control of both chambers of Congress, marking a major setback for President Donald Trump and the Republican Party.

With Republicans retaining the presidency but Democrats controlling Congress, the US is heading into a period of divided government.

The political shift could have implications across several industries:

📉 How have markets reacted?

Reuters reported on November 4 that global markets fell following the Democratic victories, as investors reassessed the potential implications for technology regulation and government policy.

The report highlighted:

• AI-related shares and cryptocurrencies came under pressure.

• US 10-year Treasury yields fell six basis points to 4.906%.

• The US Dollar Index declined 0.37% to 101.34.

• Safe-haven currencies strengthened.

The market reaction highlights how changes in political control can influence investor expectations, particularly for industries exposed to government regulation.

⚠️ However, political changes do not automatically translate into weaker corporate earnings or stock valuations. Their actual impact will depend on proposed legislation, congressional negotiations and broader economic conditions.

🎯 5. What Should Investors Take Away?

Nearly nine decades of market history point to three important conclusions:

1️⃣ There is no consistent winner between Democrats and Republicans.

The S&P 500 has delivered substantial returns under both parties. Historical performance varies depending on congressional control, economic conditions and the broader market environment.

2️⃣ Midterm elections have historically created greater market uncertainty.

Midterm years have recorded weaker average returns and higher volatility. However, the 12 months following these elections have historically produced strong results, with the S&P 500 recording positive returns in all 19 periods in J.P. Morgan's sample since 1950.

3️⃣ Economic fundamentals matter more than political affiliation.

Investors should pay attention to:

• 📈 Corporate earnings and revenue growth.

• 💰 Inflation and interest-rate expectations.

• 🏦 Federal Reserve monetary policy.

• 🛒 Economic growth and consumer spending.

• 🏭 Business investment and market valuations.

Political decisions can influence these factors, but they are only part of a much larger investment picture.

As Washington enters another period of divided government, the bigger question for investors is not simply which party controls Congress, but how the resulting policy environment will affect businesses, economic growth and market expectations.

📌 History suggests that Wall Street has learned to operate under both red and blue governments. Ultimately, understanding the economic fundamentals may be far more valuable than trying to pick a political winner.

💬 Your Turn: Join the Discussion

With Democrats gaining control of Congress while President Trump remains in the White House, do you see this political shift as a potential opportunity or a source of uncertainty for investors? Which sectors do you think could benefit or face the biggest challenges?

Share your thoughts below. Useful comments may receive Tiger Coins! 🪙

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