"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 slowdown in the U.S. Consumer Price Index (CPI) growth rate for July, market attention is shifting toward the upcoming midterm elections in November 2026. This comes as expectations are rising that U.S. President Donald Trump will attempt to boost the stock market to win voter support. However, experts point out that the potential for renewed inflation pressure due to a blockade of the Strait of Hormuz, as well as persistently high long-term interest rates, will be the core variables determining the future direction of the stock market.

According to Shinyoung Securities on August 18, historically, U.S. stock markets in midterm election years have shown weakness ahead of the elections due to heightened uncertainty, but have tended to rebound sharply immediately afterward. The market typically bottoms out around September and then rebounds on expectations of reduced uncertainty, showing a robust seasonal pattern with an average increase of 22.7%. In fact, in 24 midterm elections held since 1930, the probability that the S&P 500 rose over the six months following the election was as high as 96%. Although stocks may falter before the election, the belief that the market bounces back as uncertainty fades is not without basis.

This stock market rebound has occurred regardless of which party won. Whether the ruling or opposition party was victorious, the market responded simply to the resolution of uncertainty, producing distinct rallies in October and November. This is also evident in monthly returns: in midterm election years, June (-1.3%) and September (-1.5%) tend to be weak, while October (2.4%) and November (2.2%) record solid performances. From summer to early autumn ahead of the election, indices tend to stagnate, but rebound in October and November as expectations rise for reduced uncertainty.

Of course, there have been exceptions, with 60-day returns after the election falling below -5%. This occurred only three times: during the Great Depression in 1930, the oil shock in 1974, and the combination of the Federal Reserve’s tightening and the U.S.-China trade war in 2018. Strong macroeconomic shocks, such as high inflation, high interest rates, and war, were able to override the stock market’s seasonal post-election gains, rather than the political events themselves.

Currently, the U.S. is grappling with both high inflation and interest rate issues. According to The Economist’s survey in the first week of August, the main reason for the decline in approval ratings for the Trump administration is rising prices. In fact, 44% of voters identified the economy as the most important issue, outweighing all others, including healthcare, civil rights, immigration, and security. As long as the physical risk from the Hormuz blockade persists, relying solely on conventional seasonal rebounds to guide stock market participation could prove risky.

Korea Investment & Securities predicted that, if international oil prices, based on West Texas Intermediate (WTI), remain around 80 U.S. dollars per barrel on average due to war between the U.S. and Iran, headline CPI is likely to rebound beginning next month. Although there is considerable uncertainty regarding the course of the war and the level of oil prices, cumulative data up to August 10 suggests that the August CPI could rise to between 3.6% and 3.7%.

Inflation concerns are also evident in the bond market. While the U.S. Federal Funds Rate remains unchanged at 3.75% since the beginning of this year, as of August 12 (local time), the 2-year Treasury yield was 4.1%, the 10-year was 4.6%, and the 30-year yield was 5.2%. In particular, the rise in long-term yields for 10- and 30-year Treasuries reflects not only inflation worries, but also heightening concerns over fiscal deficits. If this situation persists, it could put structural pressure on growth stocks with stretched valuations and on the overall index.

However, some point out that rising market interest rates should not be taken as an immediate signal for a sustained downturn in stocks. Since the Trump administration will likely try to keep oil prices under control with the election ahead, the upper limit for oil may be restricted. In addition, the upcoming Jackson Hole meeting on August 27 could help alleviate monetary policy uncertainty through remarks by Federal Reserve Chair Kevin Warsh, and, if the characteristic seasonal post-election rebound ensues after the midterms, the market’s current burden from high rates may ease faster than expected.

Experts advise closely monitoring U.S. long-term interest rates, as the risk of inflation from rising oil prices remains. Seo Sangyoung, researcher at Mirae Asset Securities, noted, "While July CPI met expectations, inflationary pressures persist," adding that "international oil prices remain highly sensitive to Middle East geopolitical risks, and the recent decline in accommodation costs could be only temporary." Lee Sangyeon, researcher at Shinyoung Securities, said, "For the rest of the second half of the year, the key factor for global equities, including the Korean stock market, will be the U.S. interest rate environment," emphasizing that "we must closely watch which direction long-term rates move."

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