Democrats Took Congress. Here's What Market History Says About the Next Two Years.

Fri Nov 6, 2026 · by Hank Package for Somibo Digital · election data rechecked at about 8:24 AM ET Friday, Nov 6

Well, the votes are mostly counted. The Associated Press says Democrats won control of both the House and the Senate in Tuesday's midterms.¹ As of Friday morning, AP-called races gave Democrats at least 54 Senate seats (counting two independents) to Republicans' 44, and at least 253 House seats, a gain of at least 41.²³ Alaska's and Mississippi's Senate races were still too close to call, and 25 House races were still uncalled.² Those numbers will move a little. The control call won't.

President Trump, a Republican, has two years left in his term. So the next two years look like a setup the market has seen before: a Republican in the White House and Democrats running both chambers of Congress.

The last time both chambers changed control in the same midterm was 2006. It also happened in 1994 and 1954, according to congressional history records.³¹³² That's not a common thing.

The closest matches in the record

CNBC ran the numbers on midterms since 1980. Three of them left a Republican president facing a Democratic House and Senate: 1986, 1990 and 2006. After those three, the S&P 500 averaged −0.5% on the day after, +3.4% a month later, and +10.9% a year later.⁵

Here's the year-by-year version, from a separate analysis by Pepperstone that used S&P 500 price data:⁶

Pepperstone also notes the 1986 year included a 33.2% peak-to-trough fall, ending with the October 1987 crash. The 2006 year had a 9.4% drop along the way.⁶

Arithmetic on Pepperstone's rounded figures gives 10.97%, or about 11.0%, close to—but not exactly—the 10.9% CNBC reported. CNBC's article does not specify whether its averages include dividends; Pepperstone explicitly uses price returns excluding dividends. Treat them as separate analyses, not proof of an identical return series.⁵⁶ But look at the spread. One year was nearly flat and had a crash in it. Another was up a quarter. Three elections is not much of a sample, and Pepperstone says so itself.⁶

For what it's worth, the first day this time didn't follow the old script. On Wednesday the S&P 500 rose 1.6% to 7,688.62, which AP called the best day in three months.⁷⁸ Reuters reported that oil fell on bets the new Congress could hasten an end to the Iran war, energy shares dropped 4.8%, consumer stocks rose 4.3%, and chip and defense stocks fell.⁷ CNBC tied part of the rally to the president accepting the results.⁹

The next session is an important check on that first reaction. On Thursday, the S&P 500 fell 4.36% to 7,353.73, more than erasing Wednesday's gain. Reuters described a technology and chip selloff as investors reassessed what Democratic wins could mean for AI data-center construction; AP also cited borrowing-cost and valuation concerns around AI stocks.²⁸²⁹ Two sessions do not establish a trend, either.

The two-year view

A year is one thing. We're looking two years out, through the 2028 election, and the record is more mixed. Important distinction: the bullet points below are separate calendar-year and party-control averages—not measured 24-month returns after 1986, 1990 and 2006, and not a two-year forecast. RBC's figures are average annual price returns since 1932, excluding dividends.¹¹

• Year three tends to be the strong one. Since 1928, the third year of a presidential term has been positive 78% of the time, averaging 13.5% against 7.7% for all years, per a CFA Institute analysis of Bloomberg data.¹⁰ RBC's count since 1932 puts the year-three average at 16.3%, but with a range from −5.2% to +41.4%.¹¹ 2027 is year three.
• Year four has been cooler. RBC's election-year average since 1932 is 6.1%.¹¹ 2028 is year four.
• This particular setup has the weakest record. RBC Capital Markets looked at average annual S&P 500 price returns since 1932 by who held power. A Republican president with a Democratic Congress averaged about 5% a year. A Republican sweep averaged 13%, and a Democratic president with a Republican Congress averaged 13%.¹¹
• But the differences may not mean much. U.S. Bank studied 31 midterms back to 1900 and found the 12 months after averaged 12.4%. Its series uses the Dow through 1928 and the S&P 500 afterward; the article does not label that 12.4% average as price-only or total return. Its statistical testing, though, "did not find large or consistent differences sufficient to establish a dependable midterm-election effect." Average three-month returns under one-party versus mixed control (2.42% vs. 2.17%) weren't statistically different either.¹² Among the 19 midterms since 1950 that Pepperstone measured, divided and unified government had nearly tied subsequent 12-month price returns at 15.1% and 15.0%.⁶

So, plainly: history leans positive for the year after a midterm, the party-control average is cooler for this exact setup, and the people who test it hardest say politics alone doesn't explain much. LPL's research team says earnings, growth, interest rates and inflation are "likely to remain more important than the final seat count."¹³ Deutsche Bank's Jim Reid put it shorter, as quoted by CNBC: "Seasonality isn't destiny."⁵

Risks and openings, in the words of the people in charge

Here's what the folks holding the levers have said on the record. I'm not reading tea leaves, just quoting.

Gridlock and vetoes. The president congratulated Democrats and said, "I look forward to working with you for the good of our country." In the same interview he added, "Otherwise, I'd just veto everything."¹⁴ In remarks reported by AFP, he said Democrats "can send over, you know, 50 different great bills... and I send them back with a nice stamp — 'veto.'"¹⁵

Costs and common ground. Senate Democratic leader Chuck Schumer said Wednesday, "The first thing we are going to do is reduce people's costs," and "we are going to work hard to drive costs down with the president or without him."¹⁶ House Democratic leader Hakeem Jeffries said Democrats are "ready, willing and able to find bipartisan common ground," and listed reversing Medicaid cuts, extending the ACA tax credits, ending the Iran war and stopping the tariffs among their priorities.¹⁶¹⁷

Tariffs. That last one runs into the executive branch. Before the election, Treasury Secretary Scott Bessent was asked what a Democratic House could do to stop the agenda. "I think there's very little," he said. "We have very durable tariff authorities."¹⁸ That's an Oct. 20 quote, so it's from before the votes came in.

Interest rates and inflation. At the Fed's Oct. 28 meeting, policymakers held rates at 3.75% to 4% and said "inflation remains elevated." Two members dissented because they wanted a hike.¹⁹ Chair Kevin Warsh said "politics played no role in the decision."²⁰

The money deadlines. Current government funding expires Dec. 11. The $41.1 trillion debt limit is projected to be reached sometime in 2027, though estimates differ on exactly when.²¹²² CNBC reports that the president has called on Republicans to settle the debt limit before the new Congress is seated.²² Debt-limit fights have rattled markets before. Whether this one does is an open question.

A note on crypto rules, since folks ask. The CLARITY Act, a crypto market-structure bill, passed the House 294–134 in July 2025 and then failed a Senate procedural vote 49–50 in September. Its future path will involve the incoming Democratic Congress.²³³⁰ That's all that's confirmed so far.

What to watch

These are on the calendar. I'll stick to dates, not guesses.

• Tue, Nov 10, 8:30 AM ET: October CPI inflation (BLS).²⁵
• Dec 8–9: Fed meeting, with new projections.²⁶
• Thu, Dec 10: November CPI.²⁵
• Fri, Dec 11: Government funding deadline.²¹
• Jan 3, 2027: New Congress is scheduled to begin at noon unless a law sets another date.²⁷
• 2027: Debt-limit deadline (date estimates vary).²¹²²
• Any day now: Final calls in Alaska and Mississippi.²

History can tell you what's happened. It can't tell you what's next. The record after midterms leans one way, but it has crashes in it too, and the folks who study it hardest say to watch earnings, inflation and the Fed before the seat count. That's about where I land.

Disclaimer: Educational content built on public data and public statements. Not financial advice. Past performance doesn't guarantee future results. Election figures were preliminary when rechecked at about 8:24 AM ET on Nov 6, 2026. Historical averages are labeled by window and index basis where the sources provide it; they are not forecasts or total-return projections.