US MIDTERM KEY TAKEAWAYS:
- Democrats made sweeping gains in the US midterm elections, winning control of both the House and Senate.
- The broad US stock market has historically returned and average of roughly +15% in the half year following a mid-term election.
- For S&P 500 bulls, the next zone to watch will be around the late summer (and all-time record) highs in the 7,825 area.
US Midterm Election Recap
As you’ve no doubt heard by now, Democrats made sweeping gains in the US midterm elections, winning control of both the House and Senate and ending Republicans’ unified hold on Washington. The party flipped at least seven Senate seats, with notable victories in Texas, Ohio, Iowa, Kansas, North Carolina, South Carolina and Maine.
In the House, Democrats captured a majority by flipping more than two dozen districts, including seats in states that backed Donald Trump in 2024. Democrats also won several key gubernatorial races, including in Georgia, Ohio, Iowa and Texas.
For political analysts, the results marked a sharp setback for Trump and the Republican Party. Voters cited high living costs, dissatisfaction with the administration and a desire for stronger congressional checks on presidential power.
US Midterm Election: Stock Market Impact
For traders, the implications are more nuanced. Perhaps most importantly for traders, the election results are unambiguous, and President Trump has already publicly declared that he is “absolutely willing to accept the results;” this outcome removes a tail risk of a contested or disputed result that could extend uncertainty, and we’re accordingly seeing measures of implied volatility falling across markets.
Underscoring this theme, the chart below shows the historical performance of the S&P 500 in the six months following each US midterm election since 1950:
Source: StoneX. Past performance is not indicative of future results.
As you can see, the broad US stock market has historically returned and average of roughly +15% in the half year following a mid-term election, well above the full historical sample of 6-month returns.
However, there are still some reasons for caution. Fears of a potential government shutdown over funding disagreements, the ongoing war with Iran, and pushback against AI datacenters are all significant risks to monitor in the coming months. In particular, datacenters were a big loser from the election: 44 of 45 datacenter-related initiatives lost, often with 70-90% opposition. A slowdown in datacenter development could hurt the broader “AI trade” that has driven markets sharply higher in the past couple of years. Investors are already starting to price in that possibility, though it remains to be seen whether the current negative sentiment will ultimately impact policy:
Source: Yahoo Finance, EconVitals
Despite today’s AI stumble, broader US indices are trading higher on the positive seasonals and removal of uncertainty; time will tell if bulls’ festive mood carries through the holidays.
S&P 500 Technical Analysis – SPX Daily Chart
Source: TradingView, StoneX
After an overnight swoon, the S&P 500 is showing a potential bullish engulfing candle on the daily chart. For the uninitiated, a Bullish Engulfing candle is formed when the candle breaks below the low of the previous day before buyers step in and push rates up to close above the high of the previous day. It indicates that the buyers have wrested control of the market from the sellers and shows potential for more upside in the coming days.
For bulls, the next zone to watch will be around the late summer (and all-time record) highs in the 7,825 area, whereas a break below the election lows near 7,500 would call the bullish bias into question and potentially expose 7,300 to the downside.
-- Written by Matt Weller, Global Head of Research
Check out Matt’s Daily Market Update videos on YouTube and be sure to follow Matt on Twitter: @MWellerFX
