Midterm history and earnings forecasts support the stock outlook

US stocks have so far shrugged off midterm-election uncertainty. Truist chief strategist Keith Lerner said every midterm election year since 1946 was followed by positive one-year stock returns, with an average gain of 14.4%.

The biggest gain in the period came after the 1954 midterms, when stocks rose 34%. Lerner also noted that the S&P 500 has gained an average of 6.6% in midterm-year fourth quarters since 1950, rising in 84% of them.

Earnings expectations are another source of support. FactSet expects S&P 500 companies to report 29.5% year-over-year growth for the third quarter. If realized, that would be the third consecutive quarter above 25% growth and the eighth straight quarter of double-digit growth.

Analysts expect earnings growth of 27.6% in the fourth quarter and 32.4% for 2026. Resurgent oil and gas prices are weighing on consumer sentiment, while rising bond yields are increasing the cost of capital for consumers and businesses.

Morgan Stanley strategists said election uncertainty could prompt a near-term decline if Democrats outperform, but argued that the type of majority matters more than which party wins. They said unified Republican control is the main upside risk, while divided government would bring the least supply pressure and rate volatility, but a clearer downside risk to growth.