US Weekly Kickstart The 2026 midterms and US equities

Portfolio Strategy Research 24 July 2026 | 4:11PM EDT

The 2026 midterms and US equities

n Equity investor focus is likely to turn increasingly to the midterm elections in Ben Snider | coming weeks. US midterm elections take place on November 3rd, three months Goldman Sachs & Co. LLC

from now. In past cycles, economic policy uncertainty has usually risen in the Ryan Hammond | August ahead of midterm elections and remained elevated in the subsequent few Goldman Sachs & Co. LLC months. Jenny Ma | n Midterms add to the near-term argument for owning index volatility. Goldman Sachs & Co. LLC

Alongside elevated policy uncertainty, equity volatility has usually risen in the Daniel Chavez | lead-up to Election Day. Today, record low correlations across stocks are Goldman Sachs & Co. LLC suppressing index volatility. While the AI trade and upcoming earnings reports Kartik Jayachandran will likely continue to weigh on correlations, increased focus on macro issues | including elections, geopolitics, and interest rate volatility should put upward Goldman Sachs & Co. LLC

pressure on equity index volatility. Christophe Sung | n Equities have typically traded sideways in the few months ahead of Goldman Sachs & Co. LLC

midterms. During 13 midterm election years since 1974, the S&P 500 has generated a median return of 0% from the start of August through Election Day. Returns have typically improved post-election. Mirroring this pattern, mutual funds and foreign investors have generally demonstrated reduced demand for US equities ahead of midterm elections but increased allocations afterward. n The outcome of the midterms is unlikely to be a major cause of equity volatility. Prediction markets indicate a roughly 85% likelihood that Democrats win control of the House, implying a limited likelihood of a major signal from the election outcome regarding future legislation. In addition, most recent political uncertainty has been unrelated to legislative policy. However, investors are watching the midterms for signals relating to the 2028 election cycle. n Very few parts of the equity market have demonstrated a recent relationship with midterm election odds. The largest changes in prediction market odds this year have occurred alongside swings in energy prices. Within the equity market, most sectors, factors, and thematic baskets have traded with no substantial correlation to prediction market probabilities of election outcomes in recent months, although this may change as the election draws closer.

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Goldman Sachs US Weekly Kickstart

The US equity market around midterm elections

With the 2026 midterms three months away, investor focus is likely to turn increasingly to elections in coming weeks. Midterm elections will take place this year on November 3. During the last few decades, economic policy uncertainty and equity market volatility have typically begun to rise in the late summer ahead of midterm elections. Our economists have found the same pattern after adjusting for the economic cycle as measured by the unemployment rate.

Exhibit 1: Policy uncertainty typically rises ahead of Exhibit 2: S&P 500 volatility usually rises ahead of midterm elections midterm elections

160 22% Median monthly Economic Midterm S&P 500 median monthly Policy Uncertainty Midterm 140 elections 20% realized volatility Midterm election years elections Midterm election years All years since 1985 18% All years since 1974 120

40 8% May Jun Jul Aug Sep Oct Nov Dec Jan Feb May Jun Jul Aug Sep Oct Nov Dec Jan Feb

Source: Policyuncertainty.com, Goldman Sachs Global Investment Research Source: Goldman Sachs Global Investment Research

Alongside elevated uncertainty, mutual funds and foreign investors have typically demonstrated reduced demand for US equities ahead of midterm elections. Around the past 10 midterm elections, US mutual funds increased their cash holdings by an average of 0.4% of AUM during the 3 months before the elections and then reduced those cash positions by 0.6% during the 3 months…