We discussed the midterms and Maine’s 2nd Congressional District on Sept 22. This is the second commentary on midterms as part of a series.
In this “Part 2” of our midterm series, we offer readers a list of views about midterms and markets. In summary. Most of history says that markets improve after the midterms most of the time. That is the “mean reversion” view.
IMO, that is because markets dislike uncertainty and can adjust and accept outcomes regardless of the outcome. It is uncertainty that creates market volatility. But will uncertainty rise or fall with POTUS 47 in his unrestrained “lame duck” final two years?
I remember conversations with the late Art Cashin, the unofficial Dean of the New York Stock Exchange and a familiar presence on CNBC. For those fortunate enough to participate, Art was also the respected organizer of the “Friends of Fermentation.” Hat tip to Eric Kaufman for reminding me of those conversations during our recent catch-up call.
Officially Art was the Director of NYSE Floor Operations for UBS until his passing in 2024. Art welcomed the volatility of the midterms. His classic comment was that a “slow trading day was a waste of a clean shirt and cab fare.” I read his daily note on receipt. He used to joke that he gave up email because people kept emailing him. Art Cashin and Yogi Berra had certain things in common. 😊
In Art’s quarter century of observations, the market agents practiced “mean reversion.” Midterms would give way to an outcome. Uncertainty would morph into known results. Lame duck sessions were a short-term risk factor. And then the political cycle would begin anew.
That was then.
IMO, the world is now operating with Mean Reversion as a trap. Most things are bi modal. The craziness of POTUS 47 and his team have caused regime shifting to be more important than mean reversion. In a bi-modal world the valley between the modes is the trap.
Here’s a simple NON-Market moving example. The embarrassment of POTUS 47 I will call the reflecting pool affair. Millions were wasted. Alleged “vandals” caused the problem. An arrest of an innocent. And then the contractor admits it was his fault. The news cycle moved on.
The same pattern applied to Oil and Hormuz. That bi-modal model is and was market moving. We described it on September 24 in our commentary, “Oil!”
My friend Jim Lucier summed things up nicely last week in a Capital Alpha Partners publication (link in “Reading List” below). Excerpt follows.
“Midterm Election: Two Different Views
The November 3 midterm election is exactly six weeks away. Early voting has begun or is about to begin in a number of states. We believe the major macro factors affecting the election are already largely baked in. These include the state of the economy, fuel prices, the unpopular war with Iran, and President Trump’s low approval rating. According to AAA, the national average retail gasoline price is $4.48/gallon, a seasonal record, while diesel is $6.53/gallon, an all-time record for any time of year. The diesel fuel needed to run a large combine harvester for a single day can cost $2,000 or more, helping explain the distress in farm country.
A traditional way of forecasting the election would be to assess individual congressional districts in light of the generic ballot. If Democrats have a 7-point lead on the generic ballot, then presumably they would win all or most seats that Trump carried by 7 points or less. The Cook Political Report estimates that Democrats are poised to pick up 10 to 15 House seats on this basis, bringing the total number of Democrats in the House to between 225 and 230, up from their current 215. But Democratic gains this cycle might still be limited compared with previous cycles. Even in a Democrats +10 wave election, Cook Political estimates that the number of flippable seats would be only 25. Similarly, Democrats appear poised to gain Senate seats in at least a few closely contested states, such as North Carolina, Maine, and Ohio. But Democrats would still need to win at least one seat in a state such as Texas, Iowa, or Alaska, all of which Trump carried by more than 11 points.
If the traditional way of forecasting produces a single peak-probability outcome, though, we are considering the possibility of a bimodal view, in which we regard the generic ballot as a less reliable guide to individual contests. Instead we see two scenarios. In one, we could see a Blue Tsunami scenario driven by Trump’s unpopularity, putting something closer to 100 House seats in play rather than 25, with a similarly larger number of Senate seats becoming competitive. In the other, we could see a Red Rebound, in which Republicans are able to deploy a potentially $1 billion advantage in cash on hand to limit their House losses and possibly maintain their Senate majority. Our good friend Mark Halperin argues that current odds favor the Blue Tsunami.
We thank Jim Lucier for permission to share this excerpt from his September 22nd missive and reference the graphic reflected view of Mark Halpern.
Here’s the reading list for midterms and markets.
Midterm 2 — Reading List
1. “What History Says About 2026 Midterm Elections and Market Performance”
Authors: Bryan Wood and Mark Peterson
Publisher: BlackRock
Date: June 11, 2026
Direct URL: BlackRock — 2026 Midterm Elections and Market Performance
Why it matters: BlackRock examines historical market performance surrounding midterm elections, including volatility before the vote and the tendency of equities to strengthen as electoral uncertainty diminishes. BlackRock
2. “CAPITAL IDEAS: How Does the Stock Market Perform After Midterms?”
Author: Allen Harris
Publisher: The Berkshire Edge
Date: September 7, 2026
Direct URL: The Berkshire Edge — How Does the Stock Market Perform After Midterms?
Why it matters: Harris reviews historical pre- and post-midterm market behavior, providing additional context for distinguishing election-related volatility from longer-term market performance. The Berkshire Edge
3. “Midterm Year Pullbacks Have Been Followed by Double-Digit Gains”
Author: Frank Holmes
Publisher: U.S. Global Investors
Date: August 14, 2026
Direct URL: U.S. Global Investors — Midterm Year Pullbacks
Why it matters: Holmes uses six decades of market history to put midterm-year volatility into perspective, including the historical pattern of weakness before Election Day followed by stronger post-election performance. USFunds
4. “5 Things To Expect If Democrats Win In November”
Author: Rick Newman
Publisher: The Pinpoint Press
Date: September 22, 2026
Direct URL: The Pinpoint Press — 5 Things To Expect If Democrats Win In November
Why it matters: Newman considers the institutional and policy consequences of a change in congressional control, including oversight, confirmations and the practical limits that divided government would place on major legislation. thepinpointpress.com
5. “Trump’s Favorite 2026 Campaign Target Is Biden: Nearly 900 Mentions and Counting”
Publisher: Reuters
Date: September 21, 2026
Direct URL: Reuters — Trump’s Favorite 2026 Campaign Target Is Biden
Why it matters: Reuters examines President Trump’s repeated references to former President Biden during the 2026 campaign, providing a window into one element of the administration’s midterm messaging strategy. Reuters
6. “Behind the Curtain: Trump’s Future Foretold”
Authors: Jim VandeHei and Mike Allen
Publisher: Axios
Date: September 21, 2026
Direct URL: Axios — Behind the Curtain: Trump’s Future Foretold
Why it matters: VandeHei and Allen examine the political pressures surrounding the Trump administration as the midterms approach and how the prospect of a change in congressional control could affect the remainder of the presidency. Axios
7. “2026 Midterm Election and Capital Markets”
Author/Contributor: Bill Kennedy / RiskBridge Advisors
Publisher: RiskBridge Advisors; hosted by The Kotok Report
Date: July 2026, with September 20, 2026 update
Direct URL: 2026 Midterm Election and Capital Markets — PDF
Why it matters: The presentation connects the midterm political environment with capital-market considerations; Kennedy subsequently noted that its July analysis should be read with updated September information for its Pain Indicator and prediction-market data.
8. “Six-Chart Sunday — That Escalated Quickly”
Author: Bruce Mehlman
Publisher: Bruce Mehlman’s Age of Disruption
Date: September 20, 2026
Direct URL: Bruce Mehlman’s Age of Disruption — That Escalated Quickly
Why it matters: Mehlman’s “Midterm Prospects” graphic places the changing electoral environment alongside other rapidly shifting economic and policy indicators, using generic-ballot aggregation and prediction-market readings to illustrate how substantially conditions had moved during 2026. Bruce Mehlman
The following chart is featured inBruce Mehlman’s Age of Disruption.
Midterm Prospects: In January, Dems had an 18% shot at the Senate per Kalshi. On Friday it hit 60%, and Dems’ generic ballot lead doubled.
Sources: RCP generic ballot poll aggregation; Kalshi (Senate & House)
9. “Washington Energy Weekly: Iran, Trump-Xi, Diesel, Permitting Reform, Data Centers, SPR, Midterms”
Authors: James Lucier and Bridget DiCosmo
Publisher: Capital Alpha Partners
Date: September 22, 2026
Direct URL: Capital Alpha Partners — Report PDF supplied with David’s source material
Why it matters: Capital Alpha examines the midterms in the context of fuel prices, the Iran conflict, economic pressures and congressional politics, presenting alternative scenarios for how the election could reshape control of Congress.
Substack closing:
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