Retirees Could See Half the S&P 500 Returns After the Midterms if History Repeats

Retirement Researcher data from 1926 to 2023 shows the S&P 500 averaged 7.33% a year under a Republican president with a divided Congress, roughly half the 14.51% under unified control. Prediction markets on November 3 gave Democrats a 94% chance of taking the House and 77% odds in the Senate.

The gap reshapes where you stand financially as a retiree drawing income from an index fund, since the 34 years at 7.33% represent the second most common political configuration in the dataset, and Axios found the same return split using roughly a century of index data.

Ninety-eight years of data show four distinct return patterns depending on who controls Washington

A split Congress under a Democratic president produced the strongest average at 16.63% across 15 years, while unified Democratic control delivered 14.01% across 36 years, Motley Fool showed. Unified Republican control came in at 14.51% over 13 years, and a split Congress under a Republican president trailed at 7.33% over 34 years.

The 7.33% figure may look modest next to the others, but it still outpaces most alternatives available to a retiree, including Treasury bonds and certificates of deposit. The concern for anyone living off portfolio withdrawals is that 7.33% leaves a thinner margin between what the market gives and what your spending takes away.

Every time a party lost both chambers since 1950, the S&P 500 rallied the following year

Ryan Detrick, Chartered Market Technician (CMT) and Chief Market Strategist at Carson Group, found that the S&P 500 posted a positive return 100% of the time in the year after a party lost both houses of Congress, averaging 21.3%, Motley Fool showed. The sample includes every midterm since 1950 in which one party surrendered unified control.

Detrick also noted that the S&P 500 has been higher in November in each of the last 19 consecutive midterm elections since 1950, Motley Fool highlighted. The pattern suggests the market tends to welcome the certainty that follows an election, even when the outcome shifts the balance of power against the party in the White House.

Midterm election years have produced an average intra-year drawdown of 18% since 1957

The S&P 500 has entered correction territory in 12 of 17 midterm election years since 1957, roughly a 70% hit rate, and slipped into bear market territory in six of those 17, Motley Fool showed. The drawdowns tended to arrive in the third and fourth quarters, precisely the period a retiree may be making year-end withdrawal decisions.

• Carson Research found that the six months after midterms, from November through April, have historically been the strongest stretch of the four-year presidential cycle, averaging 14% returns.
• The S&P 500 rose roughly 19% in 2017 under unified Republican control, then fell about 6% in 2018 after midterms shifted the House to Democrats.
• UBS assigned a 50% probability to Democrats winning both the House and the Senate in the 2026 midterms.

The historical pattern offers a warning and a reassurance that midterm years tend to deliver steep drawdowns, but the months immediately afterward have consistently rewarded investors who stayed the course. A retiree planning withdrawals through this window faces the challenge of timing income needs around a period that history says may get worse before it gets better.

Divided government raises the odds of a debt-ceiling standoff in the first half of 2027

The debt ceiling is projected to come up for negotiation in the first half of 2027, and divided government has historically made those discussions more contentious and shutdown-prone, Motley Fool showed. A government shutdown or a prolonged ceiling fight could rattle the same index fund your retirement portfolio relies on for steady growth.

Democrats have also signaled support for more restrictive AI regulation, including limits on data center expansion and additional testing requirements for large language models, Motley Fool documented. The legislative headwinds may weigh on the technology stocks that make up roughly 40% of the S&P 500, directly shaping the performance of your index fund position.

The difference between 7.33% and 14.51% compounds against a portfolio drawing income every year

A retirement portfolio growing at 14.51% a year doubles in roughly five years, while one growing at 7.33% takes nearly a decade to do the same. Withdrawals during the slower-growth scenario consume a larger share of the balance each year, leaving less to compound and accelerating the pace at which the portfolio shrinks, Motley Fool highlighted.

Consensus expects 24% earnings growth for the S&P 500 in 2026, and the forward price-to-earnings ratio of 20.5 sits only modestly above the 10-year average of 19, Motley Fool showed. Strong earnings may offset some of the political drag, but the 98-year pattern suggests a retirement portfolio may need to plan for a prolonged stretch at the lower end of the historical range.

The most likely political outcome matches the weakest return scenario in 98 years of data

The 7.33% average is not a forecast, and a 34-year sample carries real variation around that figure, Motley Fool documented. Still, the pattern is consistent enough across nearly a century of data that a retirement portfolio built around double-digit annual growth may need a withdrawal adjustment for the years ahead.

Bottom line

The S&P 500 has gained roughly 11% year to date as of mid-2026, and a fourth straight year of double-digit returns would match a streak last achieved during the dot-com era of the late 1990s. The political shift taking shape on election night introduces a structural headwind that the 98-year dataset says has historically cut those gains in half.

Reviewing your withdrawal rate on must-have investing apps before the new Congress takes office may reveal whether your income plan holds up under a 7% growth assumption instead of a 14% one. The post-midterm rally that Detrick documented offers a potential near-term tailwind, but the longer-term return pattern under divided government has persisted across nine decades.

This article is for informational purposes only and should not be considered investment advice.

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