Markets Watch Midterms for Control of Spending Power

Investors watched Tuesday’s midterm elections for clues about congressional spending plans as U.S. Treasury yields moved in mixed directions Monday, Nov. 2. The market report framed the vote less as a public decision than as a signal about who might steer government priorities—and how investors might respond.

Early trading brought modest moves. The 10-year Treasury yield fell 1 basis point to 4.914%, the 30-year yield dropped about 2 basis points to 5.284%, and the 2-year yield rose 1 basis point to 4.589%. CNBC’s later update put the 10-year yield down more than 4 basis points at 4.884%, the 30-year yield down more than 5 basis points at 5.255%, and the 2-year yield up less than 1 basis point at 4.585%. One basis point is 0.01%; yields and prices move in opposite directions.

The ballot, translated into market risk

Investors watched the election results for what they could mean for congressional spending plans and priorities. That’s the institutional lens: control of Congress matters because it may change decisions about public spending. The report didn’t describe direct action, mutual aid or community organizing around those decisions; instead, it focused on investors weighing what political control could mean for markets.

History offered no promise of an easy ride. CNBC’s analysis of S&P 500 returns from 1980 through 2024 found an average gain of 0.2% one day and one week after presidential and midterm elections, rising to 1.1% after one month. One year after an election, the average gain was 13.7% after midterms and 13.8% after presidential elections, with positive returns in 91% of cases. The index rose after all 11 midterms from 1982 through 2022. Short-term returns proved less reliable, particularly after presidential elections, when average returns were slightly negative after one day and one week.

The analysis said markets had historically favored divided government. Across 10 midterm and five presidential elections that left no single party in charge, the S&P 500 rose an average 15% after one year, with positive returns in 14 of 15 cases. After elections that produced single-party control, the average gain was 11.5%. In this account, electoral outcomes get measured against the market’s preference for a balance of power—not against whether people gain more say over the institutions that govern them.

Power shifts, but markets keep score

In the midterms of 1986, 1990 and 2006, Democrats controlled both houses of Congress while a Republican held the presidency. The S&P 500 fell an average 0.5% on the reaction day, then gained 3.4% a month later and 10.9% after one year. Those figures come with a warning: market numbers can’t erase the influence of other forces, which may matter more.

The S&P 500 fell 22.1% in the year after the 2000 election amid the dotcom bust, its worst post-election year since 1980. Its best post-election year came after the 2020 election, with a 38.3% gain as markets recovered from the COVID-driven sell-off. After the 2018 midterms, when Democrats won the House during President Donald Trump's first term, stocks fell as the Fed raised interest rates four times. The index ended the year down 6.2%, though it stood up 11.7% one year after the election. Société Générale said Federal Reserve policy and corporate earnings matter more than elections.

The apparatus beyond election night

Forces beyond the campaign also moved bond yields and oil prices. Oil prices fell sharply after Secretary of State Marco Rubio said President Donald Trump wanted to resolve the war with Iran “diplomatically.” CNBC said oil and bond yields had tracked closely through much of the year, though that connection weakened in October as attention turned toward AI and Big Tech. Treasury prices gained Friday after a sharp technology-led equity sell-off sent investors toward safe-haven assets.

The week’s agenda included Apple and Qualcomm earnings, September JOLTS job openings on Tuesday, ADP employment figures Wednesday, productivity and jobless claims Thursday, and October nonfarm payrolls Friday. The U.S. Treasury planned to announce Wednesday the auction sizes it would use for notes and bonds. AI and technology stocks, geopolitics, the Federal Reserve and bond markets remained key uncertainties. CNBC said a Democratic sweep of the House and Senate could pressure AI infrastructure spending and prompt more retrenchment. It also pointed to rising global yields, a mini debt crisis in France and the possibility that the Iran war could worsen if President Trump followed through on threats of further strikes or Iran escalated.

Ryan Detrick, CNBC contributor and chief market strategist at Carson Group, said, “There's some anxiousness before these elections. Once you are through it, it's a big relief and markets tend to do pretty well.” He also said, “If you have a huge red wave or a big blue wave, markets actually kind of don't like that as much because you have too much spending one way and too much power.” Jim Reid, Deutsche Bank's global head of macro and thematic research, wrote: “Seasonality isn't destiny, and worries around Iran, AI and France won't mysteriously vanish.”