With the election results settled and political ads shelved for a at least another year, it’s time to look at how the mid-term election results could shape the stock market over the coming months.

Post-Midterm Election Stock Market Rally: Major Indexes Up More Than 1%

We’ve spent some of our time this year showing you stock market history as it pertains to mid-term elections, and as we showed you in those videos, the market generally goes up once the election results are in. That is certainly true in the earliest measure of that.

We are writing and recording this on the day after the mid-terms, and the major indexes are all up by more than 1%. But, this week, rather than more general stock market history, with the help of LPL Research, we are going to focus in on how a Democrat-led Congress could actually shape policy that matters to the market.

Why a Divided Government Is Generally Good for Stocks

First up, a divided government is generally good news for stocks. The major reason is that it makes it more difficult for lawmakers to pass more sweeping tax and spending policies and takes extreme policies of either party off the table because there are obvious roadblocks. The market likes certainty, which is hard to come by in this world, but having an expectation that the rules of the game won’t change midway through the game is nice.

Healthcare and Consumer Staples Sectors Under a Democratic-Led Congress

Next, LPL highlights several economic areas to keep our eyes on. The first is healthcare and consumer staples sectors. A Democratic led Congress could delay or reverse some healthcare spending cuts, potentially providing support for healthcare services, and a reversal of cuts to government-sponsored nutrition programs could add more to consumer spending.

AI and Data Center Construction Face State and Local Regulatory Pressure

AI and data center construction could be under pressure, but not likely at the federal level. Ultimately, these policy decisions are made on the state and local levels. As an example, the Republican governor in Texas is being replaced by a Democrat. That could slow down the buildout in the state with one of the biggest number of potential centers. LPL believes the centers will still be built, but may face more regulatory pressure.

Defense Spending: Bipartisan Compromise vs. Gridlock Funding Risk

Defense could benefit from bipartisan compromise, but gridlock faces funding risk.

Banking Deregulation and Mergers and Acquisitions Outlook for 2027

Banking and finance may still be on the same path, despite Democratic control of Congress. LPL does not expect election results to reverse the trend of banking deregulation by the Trump administration. But, it could be slowed by Democrat resistance. Companies may even try to rush mergers and acquisitions through in 2027 before the regulatory environment gets tougher in 2028.

Government Spending, Treasury Supply, and Interest Rate Volatility

And finally, under gridlock in Washington, additional spending bills may be difficult to pass, which put less pressure on Treasury supply and temper rate volatility. But, as we know both parties like to spend money, so, for me, that jury is still out on that one.

S&P 500 History: Positive 12 Months After Every Midterm Election Since 1950

At the end of the new day, the historical data remains. Twelve months after a mid-term election day, the S&P 500 Index has been positive every time since 1950. That’s 19 for 19. Keep your faith in the stock market over the long term, no matter who is making decisions in Washington.

Securities are offered through LPL Financial, Member FINRA/SIPC. GenWealth Financial Advisors is an other business name of Independent Advisor Alliance, LLC. All investment advice is offered through Independent Advisor Alliance, LLC, a registered investment adviser. Independent Advisor Alliance, LLC is a separate entity from LPL Financial.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.