US equity markets are braced for the customary autumn turbulence before the familiar year‑end surge. A new UBS report says midterm elections typically deliver nervous September and October trading, after which the S&P 500 has historically moved into a confident rally.
Statistics going back to 1950 outline a clear pattern. From late August through the end of March in midterm years, the S&P 500 gains an average of about 14.5%. The cycle usually starts with a pre‑election sell‑off. The index typically falls roughly 1.4% into early October and then stages a sharp recovery. Such periods have been losing propositions for investors only three times in modern history: 1978, 2002, and 2018.
Washington, meanwhile, is gearing up for a classic political stalemate. The president’s party typically loses around 25 House seats and three Senate seats in midterms. Betting markets currently put Democrats’ chances of taking the House at about 85%, while the Senate race looks evenly contested. Although a change in congressional control would affect taxes and regulation, UBS argues that corporate profits, not politics, will drive markets over the next six months.
Volatility remains the key marker of the season. The VIX fear index typically jumps ahead of votes and collapses once results are known. UBS strategists have already pitched clients trades to profit from an expected drop in volatility via options, while cautioning that derivatives are risky and historical patterns offer no guarantee of future returns.