Investor focus is set to move toward the U.S. midterm elections over the coming months, and Goldman Sachs projects a rise in policy uncertainty and market volatility as the November vote approaches. Despite that, the firm argues the election result itself is unlikely to be a decisive factor in equity returns.
Examining historical patterns, Goldman finds that equities have tended to trade sideways in the run-up to midterms. Since 1974, the S&P 500 produced a median return of 0% from the start of August through Election Day. By contrast, performance has generally improved after the uncertainty of the campaign fades - the index has delivered a median gain of 6% in the three months following Election Day.
The bank highlights several mechanics behind these moves. Economic policy uncertainty and equity volatility typically rise in the late summer ahead of midterms, prompting portfolio adjustments from both mutual funds and foreign investors. These investors commonly pare back exposure to U.S. shares before the vote and then rebuild positions once outcomes are known, feeding the pattern of muted pre-election returns followed by post-election gains.
Goldman also points to the current market environment of unusually low correlations across stocks. That backdrop increases the appeal of owning equity index volatility as investor focus shifts away from corporate earnings and toward macro issues - including elections, geopolitics, and interest-rate trends.
The firm warned that rising Treasury yields could add further strain on equities. It notes that stocks have historically had difficulty when 10-year Treasury yields increase by more than two standard deviations over a one-month period - a move that under present market conditions corresponds to roughly a 50-basis-point rise. Such sudden moves in yields could amplify downside pressure on equity markets.
While the run-up to the vote may lift uncertainty and volatility, Goldman says the election outcome is unlikely to produce large legislative surprises. Prediction markets, the report notes, imply about an 85% probability that Democrats will regain control of the House, while the Senate picture remains roughly a toss-up. That mix would limit the potential for unexpected policy shifts and instead push investors to consider what election signals mean for the 2028 presidential contest and the longer-term policy path.
On voter priorities, the report finds inflation remains the dominant concern this cycle, with survey data placing prices ahead of other issues. Market participants are also monitoring potential consequences for artificial intelligence regulation, an area where polling suggests bipartisan support for action.
Finally, Goldman reports little evidence that changes in election odds have materially shifted most sectors or investment themes recently. Consumer discretionary names display the strongest, albeit modest, correlation with evolving election probabilities, while the broader market appears to be driven more by non-election factors.