Thierry from arvy
CFA, Co-Founder & CIO of arvy, Quality Investing
Post-midterm seasonality favors further S&P 500 gains from 2026's late-October starting point. Q4 of a midterm year through Q2 of the next year has been the cycle's best nine months, averaging about 20% since 1949. Since 1950, the index was higher six months after October 26 in all 19 midterm years, averaging about 15%. In all seven years entering late October up 5-20% year to date, as in 2026, it rose three, six and twelve months later. x.comÂ
US large-cap equities enter the two strongest quarters of the presidential cycle, a seasonal tailwind of roughly 14% over six months. Per Carson Investment Research, Q4 of a mid-term year has averaged +6.6% and Q1 of year three +7.4%, higher in 18 of 19 cycles. Weak breadth has historically been a poor time to sell. The risks are serious: the Fed is hiking into an oil shock with the 10-year above 5%, banks are down about 9% since August, and 1974 is the closest analogue at roughly -35%. x.com x.com x.com x.com x.com x.com x.comÂ
US equities tend to perform well after October in midterm years, making the historical pattern hard to ignore. Since 1950, the S&P 500 rose in 19 of 19 observed 12-month periods after October, averaging 16.6% with a 3.0% worst return. October and November also averaged gains, but history is not a promise. x.comÂ
The S&P 500's post-midterm record makes 2027 pullbacks worth buying, though history does not guarantee another gain. It rose in the year after all 19 US midterm elections since 1950, averaging 15.4% over 12 months, 12.4% in six months and 5.7% in three months. Take advantage of market swings by buying pullbacks. x.com x.comÂ
The S&P 500's heavier semiconductor weighting makes its coming pullback likely larger than the 4% decline in the comparable 1995 period. Its current 16-17 week cycle looks more like November 2025 to March 2026 than the last bullish cycle, pointing to at least the lower Bollinger band in November, with a cycle low due in the month's second half. x.com x.comÂ
The S&P 500 has historically risen after midterm elections. From 1982 to 2022, returns after midterms averaged 2.8% over one month, 12.8% over six months and 14.7% over 12 months; that history supports a bullish view of SPY. x.comÂ
Post-midterm market strength calls for patience with US large-cap equities. KHerriage's quoted post cites an average S&P 500 gain of 29.9% over the next 15 months in post-midterm periods since 1950, with gains in 19 of 19 years. x.comÂ
US stocks face a likely negative and volatile September, as September tends to be in midterm election years. x.comÂ
Fed hiking-cycle history gives the S&P 500 another favorable setup alongside post-midterm seasonality. The index rose in all seven completed multi-meeting hiking cycles since 1983, averaging about 10%; it also rose 12 months after the final hike in seven of eight cases, averaging about 20%. Along with the 19/19 post-midterm 12-month and 21/21 post-midterm November-to-June records, these streaks lining up in 2026 are very hard to ignore, though history guarantees nothing. x.comÂ
Crowded fund shorts despite market participation give the S&P 500 a strong upside bias, reinforced by midterm seasonality. Net leverage this low usually appears deep in a bear market or near the end of capitulation. A rally is highly probable, but another 1.5 to 3 weeks of pain is possible: the market could be lower in two weeks, higher in a month and much higher in six months. The S&P 500 has historically gained over 14% after midterms, though there are no guarantees. x.com x.com x.com x.comÂ
The S&P 500 is vulnerable to a midterm-election drawdown, since history shows nasty 7-16% declines almost always come around midterms. Elevated 10-year yields and a strong dollar add risk, even though nothing looks bearish yet and rising yields have not dented the Nasdaq or mega-caps, and cheap volatility makes hedging attractive. SPY could reach $800 and still fall back to $750 within two months. x.comÂ
Post-midterm seasonality and hedge funds' flip from long to short make this reset the next great opportunity to build for a bull market driven by the Innovation Revolution. Since 1950, the S&P 500 has gained 29.9% on average over the next 15 months in all 19 comparable years. This selloff looks pre-war driven; military action looks nearly certain and may be the most anticipated and discounted ever. A 90-day, 32% Nasdaq bear market preceded the dot-com era's final 18-month melt-up. x.com x.comÂ
