By: Reed C. Fraasa, CFP®, RLP®, AIF®
Every two years, America holds another election. Every two years, headlines call it the most important of our lifetime.
Investors have heard that before. Markets have lived through wars, recessions, inflation, and constant turnover in Washington. Over long periods, stock prices track earnings, innovation, productivity, and human ingenuity — not election results.
When I began my career in 1989, the Berlin Wall was still standing, and the Dow Jones Industrial Average had yet to reach 3,000. Since then, I have watched nine midterm elections and five changes in control of the House of Representatives. Each one arrived with predictions that America — and the markets — were about to change forever. A few things did change. Most did not. Businesses kept innovating. Consumers kept spending. Long-term investors kept getting rewarded for patience, not political forecasting. I have said this to clients in 1994, in 2010, and again in 2018. The message never changes, and neither does the outcome.
As the 2026 midterms approach, Republicans hold narrow majorities in both chambers of Congress: 220 to 215 in the House, 53 to 47 in the Senate. According to the Cook Political Report, the House is highly competitive, and Democrats have a realistic path to control. The Senate is harder for Democrats to flip — fewer Republican-held seats are competitive there. Control of Congress could split after November.
Markets dislike uncertainty more than they dislike any single political outcome. During election years, investors react to campaign promises, debates, and unexpected headlines. That drives short-term volatility. Once the election ends, that source of uncertainty disappears. Markets have historically produced solid returns in the twelve months following midterms, as investors refocus on economic fundamentals.
History also shows the president's party usually loses House seats in midterms. This has held true with remarkable consistency since World War II. Yet these political shifts have rarely changed the market's long-term direction. Businesses adapt. Investors eventually refocus on profits instead of politics.
Some investors believe markets prefer divided government. There is evidence for that, though the relationship isn't perfect. Markets appreciate predictability. When neither party holds complete control, sweeping legislation becomes harder to pass. Businesses can plan capital spending more easily when policy changes come gradually. That doesn't make divided government inherently better. It shows that stability matters more to markets than ideology.
The temptation during election years is to reposition a portfolio around an expected outcome. History warns against it. Predicting an election correctly is hard enough. Predicting how millions of investors will react to that election is harder still. Even a correct forecast on both counts leaves the hardest question unanswered: when to buy and sell. Almost no one gets all three right.
Long-term investors should focus on what has always mattered: earnings, interest rates, inflation, and innovation. These have driven wealth creation under Republican and Democratic administrations, and in periods of divided government alike.
At HIGHLAND Financial Advisors, we don't build investment strategies around election forecasts. We build them around people, goals, time horizons, and disciplined planning. Elections matter. Public policy matters. Neither should be the foundation of a long-term investment strategy.
The next several months will bring plenty of headlines and predictions that everything has changed. The headlines will fade. Markets will keep doing what they have always done: reward businesses that create value over time.
Reed C. Fraasa is a CERTIFIED FINANCIAL PLANNER™ and founder of HIGHLAND Financial Advisors, a Fee-Only financial planning firm that offers comprehensive financial planning, retirement planning, and investment management. Reed has 30 years of experience as a fiduciary advisor and is the author of The Person is the Plan®, a unique financial planning process. Reed was a frequent guest contributor on PBS Nightly Business Report and has been featured in the New York Times, Wall Street Journal, and Star Ledger newspapers.
The foregoing content reflects the opinions of Highland Financial Advisors, LLC, and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions, or forecasts provided herein will prove to be correct.
Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses, which would reduce returns.
Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful or that markets will act as they have in the past..
The above article was written with the assistance of artificial intelligence (AI).