The Midterm Elections and Your Money: Why Politics and Portfolios Shouldn't Mix
Election cycles can stir up some intense emotions. And while everyone is entitled to have their individual beliefs, as well as causes and candidates that they support, there's one area where we all need to draw a very strong line: between our politics and our money.
In the run-up to any election, folks across the whole political spectrum ask the Keen Wealth team the same questions.
If Candidate X wins:
Will the economy go under?
Will inflation and interest rates destroy my nest egg?
Are my taxes going up?
Should I get out of the market and move to cash?
History tells us that the feelings folks have around these kinds of questions don't typically move the markets.
But following your feelings every other November can lead to some devastating financial moves that may be impossible to recover from.
On today's show, we discuss how to keep your retirement plan insulated from the political noise during the midterms.
1. Gridlock can be good.
Heading into the 2026 midterms, Republicans hold the White House and narrow majorities in both the Senate and the House of Representatives. Those narrow majorities have often made it difficult for President Trump and congressional leaders to pass major legislation.
Whether this balance of power stays largely the same, or whether Democrats secure their own narrow majorities in one or both houses, we'll probably be dealing with a slightly different shade of the same legislative gridlock until the 2028 presidential election cycle.
Many folks get anxious about divided government because things move so slowly in Washington already.
Historically, Wall Street doesn't share that frustration.
When the government is divided, it's hard for the President and Congress to wrangle supermajorities that are necessary to pass major laws. Which means things stay largely the same.
But where frustrated voters see gridlock, companies and Wall Street see stability.
And there's nothing that the markets love more than stability. In fact, the stock market has posted some of its strongest returns during periods of divided government for just that reason.
It's also worth noting that, compared to historical averages, 2026 has been unusually steady compared to typical election years.
And, on top of that, if we look back at every midterm election since 1950, the market has finished higher one year later 19 out of 19 times, with an average one-year total return of over 19%.
Translation: once the political situation is settled, the markets adjust to the new reality and keep marching forward.
Regardless of which political party wins.
2. What really moves markets?
During President Trump's first administration, the markets went up.
During President Biden's administration, the markets went up.
And during President Trump's second administration, the markets have, yet again, continued to rise -- despite above-average inflation, interest rates, oil prices, and treasury bond yields. And despite the national debt continuing to rise as well.
So if, long-term, the markets don't react much to the president, the balance of power in Congress, or the scary numbers in social media headlines, what are the markets reacting to?
As Keen Wealth's Matt Wilson consistently and succinctly explains in his Quarterly Market Update Webinars, corporate earnings.
None of that stuff I just listed above matters to the companies that are driving innovation and economic growth in the U.S. or to the investors who are reaping the benefits of those market gains.
Washington squabbles. Talking heads fret. Social media screams. And our companies keep earning, growing, and building wealth for investors who have their eyes on long-term market trajectories.
3. But ... what could change?
Political pundits largely agree that a divided government, with neither party possessing a supermajority, is the most likely outcome of these midterms.
If recent history holds, that suggests we're headed for a period of adjustment, followed by relative calm and a strong potential for steady growth once the new Congress settles in.
The tax picture also shouldn't change very much, as current policies are already locked in until 2028.
But even if we expect the short-term economic environment to remain stable, there are specific sectors of the economy that investors might want to keep an eye on.
President Trump can still issue executive orders that affect things like trade and energy policy.
One hot topic in state elections around the country is AI data centers. Without a supermajority, either party could still pass laws that might affect the tech companies. In some states, local elections might have an even bigger impact.
On the other hand, congressional gridlock might produce some opportunities for stability in investments around defense spending, health care, and pharmaceuticals.
4. “Never bet against America.”
While my team will continue to analyze potential portfolio vulnerabilities and opportunities, I'm confident our comprehensive planning strategy isn't going to change much based on the outcome of these midterms:
Diversify. Rebalance when appropriate. Maintain a stable reserve of cash and fixed-income investments.
"Never bet against America" was one of Warren Buffett's core investment philosophies. As divided as the country feels right now, and despite the very real cost-of-living issues that a lot of folks are facing, the engine of the American economy is still incredibly strong. Folks who can maintain their emotional discipline through the ups and downs of the news cycle will gain the confidence that's essential to building meaningful wealth and securing retirement.
Are the midterms making you nervous about your money? At our upcoming Q4 Market Update Webinar, Matt Wilson will deliver a thorough, no-nonsense overview of what investors can expect as we head into the New Year. And you can always reach out to Keen Wealth if you have questions about your retirement plan or a topic you’d like us to discuss on a future episode.
About Bill
Bill Keen is a financial advisor with over 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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