Didn't Fall Once in 40 Years... Can U.S. Midterms Save the KOSPI?

S&P 500 Rose Without Exception After U.S. Midterm Elections
KOSPI Also Had an Over 80% Chance of Rising Historically

Stock market indices are displayed in the dealing room at Hana Bank's headquarters in Jung-gu, Seoul, on the 3rd, as the KOSPI opens lower. The index opened at 5,715.19, down 2.46%, and fell more than 3% in early trading, slipping below the 5,700 mark. 2026.11.3 Photo by Kim Hyunmin

Concerns over the profitability of artificial intelligence (AI) investments continue to weigh on the market, with the KOSPI plunging more than 3% as the market correction persists. However, South Korean and U.S. stocks have often rebounded after U.S. midterm elections, prompting securities analysts to cautiously predict a possible market recovery in November. In particular, U.S. stocks have risen every time in the 40 years following midterm elections.

KOSPI Weighed Down by AI Fears... Hopes for Rebound After U.S. Midterm Elections

The KOSPI opened at 5,715.19 on Nov. 3, down 2.46% from the previous trading day, and extended its losses to trade at 5,667.68 as of 10 a.m., down 3.27%. At the same time, the KOSDAQ was trading at 710.56, down 3.24% from the previous session.

Major U.S. semiconductor stocks fell on concerns about AI profitability, weighing on the South Korean market as well. Overnight on Wall Street, the S&P 500 and Nasdaq Composite fell 0.51% and 1.07%, respectively. The Philadelphia Semiconductor Index also plunged 3.37%. U.S. stocks initially rose after international oil prices plunged on hopes for negotiations between the United States and Iran, but later fell, led by AI-related shares, as concerns over AI profitability persisted. Major technology stocks posted steep losses, including Nvidia (-1.26%), Microsoft (-2.83%), Broadcom (-1.18%), AMD (-7.52%), and Intel (-8.83%).

Semiconductor stocks also fell sharply on the KOSPI, including Samsung Electronics (-4.15%), SK hynix (-4.96%), SK Square (-5.16%), and Samsung Electro-Mechanics (-3.44%). The market correction is clear: over the past month, the KOSPI has fallen about 17%, the KOSDAQ 16%, the Nasdaq 8%, and the S&P 500 3%. Nevertheless, securities analysts are hopeful that South Korean and U.S. stocks will rebound after the U.S. midterm elections on Nov. 3 (local time), citing historical data.

According to FnGuide and Kiwoom Securities, the KOSPI rose an average of 2.5% in the month after the six U.S. midterm elections held since 2000. Over longer periods, its returns reached 6.3% after six months and 10.5% after 12 months. The probability of gains was 67% over one month and 83% over both six and 12 months. "The KOSPI has tended to weaken ahead of midterm elections and recover afterward," said Han Ji-young, a researcher at Kiwoom Securities. "We have repeatedly seen global risk appetite recover after the uncertainty surrounding the election is resolved."

U.S. stocks have had an even higher probability of rising than South Korean stocks. Over the four decades from 1982 to 2022, the New York market rose in every 12-month period following a U.S. midterm election. According to CNBC, the S&P 500 rose in all 11 midterm election cycles from 1982 to 2022, when measured one year after each election. The average gain was 13.7%. The average gain increased over time, from 0.5% one day after the election to 1.0% after one week and 1.5% after one month.

Returns were particularly strong under divided government, when different parties control the White House and Congress. In the 15 elections since 1980 that resulted in divided government, the S&P 500 gained an average of 15% one year later. By contrast, when one party controlled both the White House and Congress, the average gain was relatively lower, at 11.5%. "There is anxiety ahead of an election, but once it is over, relief grows and the stock market generally performs well," said Ryan Detrick, chief market strategist at Carson Group.

S&P 500 Rose After Every U.S. Midterm Election Over the Past 40 Years

Securities analysts are expressing hopes for a market rebound after the election. "Historically, U.S. midterm elections have served as events that resolve uncertainty for the stock market," said Lee Kyung-min, a researcher at Daishin Securities. "The South Korean market is currently undervalued, with its 12-month forward price-to-earnings (PER) ratio at just 4.2 times, so resolving election-related uncertainty could be a catalyst for a market revaluation."

Wall Street is also optimistic. Michael Wilson, Morgan Stanley's chief U.S. equity strategist, said in an interview with Bloomberg on Nov. 1 that the S&P 500 could fall about 9% from its recent record high to around 7,100 amid the midterm elections, the burden of AI investment, and liquidity constraints. However, he forecast a rebound to 8,000 once the uncertainty is resolved. He argued that investors should use any further declines as a buying opportunity, regardless of the election results. However, he noted that if Democrats take control of Congress by a wider margin than expected, increased regulatory pressure on data center construction could weigh on AI-related stocks.

Some, however, have warned that past patterns may not hold, arguing that market conditions have changed. The Financial Times (FT) highlighted pre-election stock performance as the biggest difference and pointed to several variables. In a typical midterm election year, stocks have tended to undergo a correction amid political uncertainty and then rebound after the election. In past midterm election years, the average decline from peak to trough was 18%. By contrast, despite recent weakness in technology stocks, the S&P 500 is up about 10% year to date.

High corporate valuations are also a concern. The S&P 500's cyclically adjusted price-to-earnings (CAPE) ratio stands at 40.7 times, the highest level among years in which midterm elections have been held. That is about twice the average of roughly 20 times since 1942. The market's gains being concentrated in a small number of technology stocks is another vulnerability. According to investment manager DoubleLine Capital, just five stocks accounted for more than half of the S&P 500's gains from January through September this year.

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