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You may not realize that midterm years drastically underperform the average. Those who were around for 2022 saw this firsthand when the S&P 500 Index (SPX) fell 19% due to runaway inflation. Plus, you have to prepare for new leadership, advises Lucas Downey, co-founder of MoneyFlows.

Before 2022, 2018 was a tough year as stocks shed 6%. Turns out this weakness has been around for decades. Since 1960, midterm election years have returned an average -1.1% for the S&P 500:
 

I should also point out that pre-election years (2027) tend to be violently positive, with average returns of 17.2%. So be careful zipping up the bear suit too tight. Instead, expect to see a higher level of choppiness.

If we look at monthly returns for midterm years more recently since 1990, you’ll find overall ho-hum returns in the January through September period, then a boost in early Q4. The main takeaway is that stocks usually struggle heading into September, before a big ramp typically in October.

Plus, as I stated earlier, you must be open to a change in leadership. We could be staring at a sidelined tech sector while value-oriented areas surge due to falling interest rates. As of this week, estimates point to a lowly 3% federal funds rate by next summer. I believe this is partly why value plays have been rising recently – to get ahead of this macro shift.

Small-caps, as defined by the S&P Small Cap 600, have gained 4.5% in the last month. Healthcare stocks have surged 6.8%. Energy stocks have gained 5.3%, while materials, staples, and financials have all held up well. The one lagging area has been technology stocks, down 1.3% over the same period.

This is why tracking money flows is so powerful. You can get up to speed on tomorrow’s biggest trends, early. And with 2026 being a midterm year, be on the lookout for rotations. We will find the outliers and bring them to you each and every week.

About the Author

Lucas Downey is the co-founder of MoneyFlows.com, which focuses on finding outlier stocks by following the big money. He is the instructor for options with Investopedia Academy and also posts videos often on his YouTube Channel, www.youtube.com/c/mapsignals.

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