"Buy in September, Smile in November?"...Will the U.S. Stock Market's 96% Post-Election Rally Hold True Again

Statistics from 24 U.S. midterm elections over the past century
Market bottoms out in September before midterms; rebounds by an average of 23%
Market rose 23 times except during the Great Depression in 1930
Direction of inflation remains un

With the U.S. Consumer Price Index (CPI) growth rate slowing in July, market attention has shifted to the upcoming midterm elections scheduled for November 2026. This is because there are rising expectations that U.S. President Donald Trump will try to boost stock markets to sway voter sentiment. However, experts point out that the key factors that will determine the actual direction of the stock market going forward are the risk of a renewed surge in inflation due to a blockade of the Strait of Hormuz, and persistently high yields on medium- and long-term government bonds.

According to Shinyoung Securities on August 18, historically, the U.S. stock market in midterm election years tends to be weak before the elections due to uncertainty and then rebounds sharply right after election day. The market traditionally bottoms out around September and then rallies by an average of 22.7% on expectations that uncertainty will be resolved. In fact, of the 24 midterm elections held since 1930, the probability of the S&P 500 rising over the following six months was as high as 96%. The conventional wisdom that the stock market wobbles ahead of the election but rebounds as uncertainty clears is by no means unfounded.

The market rebound was unrelated to the election outcome. Whether the ruling or opposition party won, the market responded solely to the resolution of uncertainty, with a clear rally observed in October and November. This is also evident in monthly returns. In midterm election years, the index tended to be weak in June (-1.3%) and September (-1.5%), while performing strongly in October (2.4%) and November (2.2%). In other words, the index underperforms in the summer to early autumn ahead of the election, and then rebounds in October and November as expectations of resolving uncertainties mount.

Of course, there have been exceptions where 60-day post-election returns were below -5%. Such cases occurred only three times: the Great Depression in 1930, the oil shock in 1974, and the Federal Reserve's tightening and the U.S.-China trade war in 2018. The typical seasonal rally was neutralized when macro shocks such as high inflation, high interest rates, or war occurred, rather than by political events themselves.

The United States is currently facing issues of high inflation and market interest rates. According to The Economist's survey from the first week of August, the primary driver behind declining approval ratings for the Trump administration has been rising prices. In fact, the most important issue cited by voters is the economy, accounting for 44%—outpacing healthcare, civil rights, immigration, security, and all other issues. As long as the physical variable of the Hormuz blockade persists, relying solely on conventional seasonal rallies to approach the stock market is risky.

Korea Investment & Securities predicted that if the international oil price—based on the West Texas Intermediate (WTI) standard—remains around an average of $80 per barrel per month due to war between the United States and Iran, headline CPI will rebound starting next month. Although there is considerable uncertainty regarding the progression of the war and international oil prices, based on cumulative data up to August 10, the August CPI is estimated to rise to 3.6–3.7%.

Concerns about inflation are also evident in the bond market. The U.S. policy rate remains at 3.75%, unchanged since the beginning of the year, but as of August 12 (local time), the yields on two-year Treasury notes stood at 4.1%, 10-year notes at 4.6%, and 30-year bonds at 5.2%. Notably, the increase in yields on 10- and 30-year bonds—both medium- and long-term maturities—is not just a sign of inflation concerns but reflects heightened worries about fiscal deficits. If this situation persists for an extended period, it could exert structural pressure on growth stocks with high valuations and on the overall index.

However, there are also views cautioning against interpreting this rise in market rates as a signal of a sustained downturn in equities. The Trump administration, ahead of the midterm elections, will likely strive to stabilize international oil prices in an effort to win over voters, which could cap oil price increases. Additionally, remarks by Federal Reserve Chairman Kevin Warsh at the upcoming Jackson Hole meeting on August 27 may reduce monetary policy uncertainty. Combined with the seasonally strong rebound in equities following the midterm elections, the current interest rate burden on the stock market may ease faster than expected.

Experts advise that, since the risk of price increases via international oil prices remains, close attention should be paid to U.S. long-term interest rates. Suh Sangyong, a researcher at Mirae Asset Securities, stated, "Although the July CPI met expectations, inflationary pressure persists." He noted, "International oil prices are highly sensitive to geopolitical risks in the Middle East, and the recent drop in accommodation prices may be temporary." Lee Sangyeon, a researcher at Shinyoung Securities, said, "The key variable that global stock markets—including Korea—will have to watch for the rest of the second half is the U.S. interest rate environment. It's essential to monitor the direction of long-term interest rates."

This content was produced with the assistance of AI translation services.