S&P 500: Q4 Strength or Election Risk?

Don Dawson

Mon, September 14, 2026 at 9:32 PM GMT+3 5 min read

Image by Jakub Zerdzicki via Unsplash

The S&P 500's Fourth-Quarter Advantage

Since 1928, the S&P 500 has averaged a 2.1% gain per calendar quarter, according to Bespoke Investment Group. However, those returns have not been distributed evenly throughout the year.

The fourth quarter has historically been the strongest, producing an average gain of 2.9%. Seasonality does not guarantee a similar result in any given year, but it gives traders a historical benchmark as the market enters the final three months of the year.

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How Past Midterm Elections Have Affected the S&P 500

Midterm election years have historically produced lower returns and more volatility than other years. Since 1937, the S&P 500 has generated an average total return of 9.2% during midterm years, compared with 13.3% in non-midterm years, according to J.P. Morgan Asset Management.

Most of the weakness has occurred before the election. Over the same period, the S&P 500 recorded a slightly negative average return in each of the first three quarters of midterm years. The pattern changed in the fourth quarter, when the index gained an average of 6.6%—more than twice the 2.9% fourth-quarter average across all years.

Markets dislike uncertainty. As Election Day approaches and the likely makeup of Congress becomes clearer, some of that uncertainty is removed. History does not guarantee a fourth-quarter rally in 2026, but it shows that midterm-year weakness has often given way to stronger performance late in the year.

How the 2026 Midterms Could Affect the S&P 500

The 2026 midterm election will not occur in isolation. Inflation remains above the Federal Reserve's long-term target, while the conflict between the United States and Iran has increased energy prices and the risk of supply disruptions. If higher fuel costs keep inflation elevated, interest rates could remain high or rise further. That combination could pressure consumer spending, corporate earnings, and stock valuations. In August, the Consumer Price Index was 3.4% above its year-earlier level, while energy prices had risen 16.3%, according to the U.S. Bureau of Labor Statistics.

Voter participation will also matter. Turnout is generally lower in midterm elections than in presidential elections. With fewer voters participating, control of Congress can become more sensitive to which groups turn out. A change in the House or Senate could alter expectations for taxes, government spending, regulation, and energy policy, creating volatility as investors assess what the next Congress can accomplish.

Voting procedures could add another layer of uncertainty. U.S. citizenship is already required to vote in federal elections, while individual states establish their voter-identification rules, according to USAGov. If identification or documentary proof-of-citizenship requirements change before the election, they could affect voter participation and election administration. The resulting makeup of Congress could differ from current market expectations, but voting rules alone cannot tell traders which party will benefit or how the S&P 500 will respond.

Seasonal Pattern

Source: Moore Research Group, Inc. (MRCI)

MRCI research on the S&P 500 has found a 15-year seasonal pattern in which the 3rd quarter has been sideways to choppy, perhaps due to reduced liquidity from market participants' summer vacations. During the summer of 2026, plenty of geopolitical and economic events contributed to this lackluster performance. As always, we should trade what we see, not what we think. But historical data can help you prepare for multiple outcomes. Having a plan and managing risk are essential to survive trading.

Technical Picture

Source: Barchart

The S&P 500 Technical Picture

The S&P 500 E-mini remains in a longer-term uptrend, with both the 50-day and 200-day simple moving averages sloping higher. The December contract is currently testing its 50-day SMA near 7,634, while the 200-day SMA remains well below the market near 7,192. This alignment suggests that market participants may view pullbacks as buying opportunities.

The green box highlights the third-quarter consolidation period. Price has moved back and forth within a broad range, consistent with the choppy third-quarter pattern shown in the 15-year seasonal chart. The dashed path represents one possible continuation of that range through the end of September; it is an illustration, not a price forecast.

If the 50-day SMA holds and buyers return, the historical fourth-quarter pattern would support another attempt at the recent highs. A decisive break below the third-quarter range would weaken that outlook and shift attention toward lower support levels. Seasonality provides a directional tendency, but price action will determine whether the S&P 500 follows that pattern in 2026.

Markets to Participate in This Opportunity

Equity traders may use the exchange-traded fund (ETF) SPY or Options on SPY to participate in this opportunity. At the same time, futures traders could use the mini-contract ES or the micro-contract ET. Options are also available on futures contracts. There are many more vehicles to trade the S&P 500, but these are among the more popular. The S&P 500 is also the most liquid index market to trade, allowing safer trade execution.

In Closing

History has favored the S&P 500 in the fourth quarter, with the pattern strengthening in midterm election years. The current technical picture also remains constructive, as the 50-day and 200-day simple moving averages continue to slope higher. Together, seasonality and trend suggest that market participants may view pullbacks as buying opportunities.

However, inflation, interest rates, the U.S.-Iran conflict, and an uncertain election outcome could disrupt the historical pattern. The market may remain choppy through the end of the third quarter before choosing its next direction. Traders should treat seasonality as a guide, not a forecast, and let price action confirm whether 2026 will follow its 15-year average.

On the date of publication, Don Dawson did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com