Midterm Market Brief

US midterms · Tuesday, Nov 3, 2026

How the November 3 midterms could play out for stocks, with high inflation, high oil prices and worries about an AI bubble.

Bottom line

History leans bullish into year-end, and a split Congress has usually been fine for stocks. This year the bigger risks are AI valuations and oil-driven inflation, not who controls Congress.

Where the market stands

Market	Close	Move
S&P 500 (SPY)	$763	−2.0% from Oct 6 high; above its 200-day average
Nasdaq-100 (QQQ)	$710	−6.6% in 8 sessions; 5% above its 200-day ($675)
Semiconductors (SMH)	$540	−19% from June high, −10.5% this week
Small caps (IWM)	$270	−11% since August
Oil (USO)	1-yr high	+29% in 3 months
Long bonds (TLT)	near lows	−13% from 1-yr high, so long-term rates are high

Distance from each index's high

2026 so far (% since Jan 2)

Nasdaq-100 (QQQ) vs its 50-day and 200-day averages

Money is rotating out of AI and chips into energy, staples and financials. The S&P is holding because the rest of the market is absorbing tech's losses.

What midterm history says

The S&P 500 has been higher 12 months after every midterm since World War II.
Midterm years usually include a 15–20% drop at the worst point, often bottoming between August and October. Stocks tend to rally once the result removes the uncertainty.
From the midterm through the middle of the next year has been the strongest stretch of the four-year presidential cycle.
The president's party usually loses House seats.

S&P 500 (SPY) through the last two midterm years vs 2026 · % since January

Dashed lines mark Election Day (2018: Nov 6, 2022: Nov 8, 2026: Nov 3). 2018 and 2022 run to mid-next-year. 2018 fell 10% into the vote and kept falling to about −20% from its peak by late December, then recovered in 2019. 2022 bottomed −25% in October and rallied after.

Year	Conditions	What happened
1974	Oil shock, double-digit inflation	Bottomed early October, a month before the vote; strong 1975
1982	Very high interest rates	Bottomed in August, then a huge rally
2002	After the dot-com bubble	Bottomed in October, recovered in 2003
2022	Inflation above 8%	Bottomed Oct 12, up about 15–20% a year later
2018	Fed raising rates	The exception: fell about 20% after the vote, recovered in 2019

When a bubble or inflation shock is unwinding, the election doesn't set the low. Valuations and interest rates do.

Which midterm looks most like 2026?

No single year matches. 2018 is the closest in market structure, 1978 in inflation and oil, and 1998 in having a bubble still inflating.

Today: Republican president and narrow Republican Congress, tariffs, high inflation, oil at a 1-year high, AI and chip valuations under strain, and a tech-led October drop from near record highs.

Year	Match	Government	Inflation	Oil	Bubble / tech	Market into the vote
2018	Closest in structure	Same: Trump, Republican Congress, tariffs	✗ Low (~2–3%)	Rose, then crashed in Q4	✓ FAANG froth; tech-led October sell-off from near highs	✓ Near highs, then an October drop
1978	Closest in inflation and oil	✓ Unified (Carter, Democrats)	✓ High (~9%) and rising	✓ Rising; Iran oil shock followed	✗ No bubble	✓ Sharp October sell-off just before the vote
1998	Closest in bubble	✗ Divided	✗ Low	✗ Very low	✓ Dot-com bubble still inflating	About −19% summer–fall drop, then a rebound
2022	Same problems, different market level	Unified (Biden, Democrats)	✓ 8%+	✓ Spike (Russia–Ukraine)	✗ Tech already crashed	✗ Deep bear market (−25%)
1974	Same causes, far worse damage	Republican president, Democratic Congress	✓ Double-digit	✓ Oil shock	“Nifty Fifty” collapse	✗ About −40% bear market, Watergate
2002	Bubble aftermath, not today	Unified (Bush, Republicans)	✗ Low	Rising	✗ Bubble already burst	✗ Deep bear market

The 2018 line in the midterm chart above shows the resemblance: a steady climb to near highs, then a sharp tech-led October drop.

What happened after the three closest matches (approximate)

2018 structure

The drop kept going after the vote, to about −20% from the high by late December, then a strong 2019 once the Fed paused.

Lesson: the election didn't stop the slide; the Fed did.

1978 inflation & oil

The October sell-off bottomed around the vote, then the market climbed modestly through 1979 despite rising inflation and the Iran oil shock.

Lesson: with high inflation and oil, the recovery was slow and choppy.

1998 bubble

The fall drop reversed fast once the Fed cut rates, and the bubble kept inflating into 2000 with very large gains.

Lesson: if AI demand holds, this pullback can be a pause in a bubble rather than its end.

Put together: 2026 looks like 2018's setup with 1978's inflation and oil problem. The 2018 risk is a slide that continues into Q4 whatever the result. The 1978 risk is a slow recovery. The 1998 upside is that AI earnings hold and this is a pause, not the top.

Which one plays out

The Fed (late October): a pause or cut points toward 1998 or the 2018 recovery.
Big Tech and Nvidia earnings: they settle whether the AI bubble continues (1998) or deflates (2000–2002).
Oil and inflation reports: if they stay high, expect 1978's slow grind.

Four election outcomes

Today: a Republican president and a narrow Republican Congress.

A. Democrats win the House, Republicans keep the Senate most common pattern

Policy: Gridlock: no big new tax or spending laws. Tariffs and executive actions continue.
Rates: Mild relief: less new borrowing can ease long-term rates.
Oil: Little change; energy policy is mostly set by the White House.
Tech / AI: Neutral.
Likely reaction: Relief rally once the result is clear.

B. Republicans keep both chambers

Policy: More tax cuts, deregulation and drilling.
Rates: Bigger deficits keep long-term rates and inflation pressure higher; bonds fall.
Oil: More US output over time; producers, refiners and banks benefit.
Tech / AI: Short pop, then pressure on expensive stocks from higher rates.
Likely reaction: Quick rally in banks, energy and small caps; tech lags.

C. Democrats win both chambers

Policy: Investigations and budget, shutdown and debt-ceiling fights. Presidential vetoes keep policy mostly frozen.
Rates: Similar to A, with more volatility around budget fights.
Oil: Less friendly to oil producers; clean energy supported.
Tech / AI: Risk of hearings on AI, Big Tech and drug pricing.
Likely reaction: Initial unease, then gridlock is priced in.

D. Close or disputed result

Policy: Days of legal uncertainty.
Rates: Brief move into bonds and gold.
Tech / AI: High-valuation stocks hit hardest.
Likely reaction: Volatility spike; the rally is delayed, not cancelled, once it resolves.

How the three risks interact

Oil and inflation mean no Fed cuts. High energy prices keep inflation above target and interest rates high, which hits expensive AI and growth stocks hardest. That's already happening.
The AI bubble is the biggest swing factor. If AI spending or earnings disappoint, a 1974- or 2002-style unwind can run past the election. If AI earnings hold up, this pullback becomes the midterm dip that history says gets bought.
Rising oil is also a growth risk. It squeezes consumers and company margins, which argues against a quick V-shaped recovery.

Three paths to Christmas

Illustrative only: rough SPY ranges for each path from the Oct 16 close ($763) to Dec 31, not forecasts.

Bull: the usual midterm pattern. A clear result, most likely gridlock. Inflation cools a little and Big Tech earnings reassure. QQQ holds its 200-day average (about $675) and the S&P makes new highs by year-end.

Base: rotation continues. A calm election, but oil and rates stay high. QQQ retests its 200-day while energy, staples and financials lead. The S&P drifts sideways, roughly $725–$780.

Bear: bubble plus inflation. Chips fall past −20%, AI earnings disappoint, oil and rates keep rising. QQQ breaks its 200-day and the S&P falls 15–20% from its high (about $625–$660). The low comes in Q4 or early 2027, not on election night.

Dates to watch

Late OctFed meeting, and Microsoft, Alphabet, Meta, Amazon and Apple earnings (the AI test) Nov 3Election Day; the market reacts on Nov 4 Early–mid NovOctober jobs report and inflation (CPI) Late NovNvidia earnings, the single biggest AI signal OngoingOil, the 10-year Treasury yield, and QQQ's 200-day average (about $675)