Midterm Elections and Market Volatility As we approach the 2026 midterm elections, market volatility has become a key concern for investors. Higher interest rates, rising oil prices, and political uncertainty have contributed to market fluctuations, while international developments, including protests in France and ongoing uncertainty in the Middle East, have added to the broader concerns facing financial markets. Historically, midterm election years have been characterized by market volatility. However, the current year’s market pullback has been relatively modest compared with historical averages. The S&P 500 experienced a 9.1% decline earlier in 2026, which is below the average peak-to-trough pullback typically seen during midterm election years. Seasonal market trends also offer an interesting perspective. Historically, late October has often marked a turning point when markets begin to perform more favorably. While there is no guarantee that this pattern will repeat, it provides useful context as investors navigate the final weeks before the election. Historical performance following midterm elections is another notable trend. Over the past 19 midterm election cycles, the S&P 500 has finished higher one year after each election. Although past performance cannot guarantee future results, this history reinforces the importance of maintaining a long-term investment perspective rather than reacting to short-term political developments. Market volatility often increases in the weeks leading up to an election, but a well-constructed investment strategy should be built around an individual’s financial goals and long-term plan. Staying the course with an investment strategy designed for a specific financial blueprint remains an important principle, even during periods of uncertainty. Global Elections, Interest Rates, and the Federal Reserve Financial markets do not operate in isolation. Events unfolding around the world can influence U.S. investments, interest rates, and investor sentiment, making global developments an important part of the economic outlook. One unexpected development has been the Brazilian election. The incumbent’s victory in a runoff election surprised many observers, and the Brazilian stock market reacted sharply. At the time of this analysis, the market was down approximately 26%, illustrating how political outcomes can create significant uncertainty for investors. Developments in international markets can also have implications for the United States. When investors become concerned about conditions in other countries, capital may flow into U.S. financial markets, including Treasury securities. These movements can affect interest rates and influence the broader investment environment. Brazil’s position as a major economy in the Western Hemisphere makes its political and economic developments particularly relevant. Political developments in Israel and elsewhere also have the potential to influence geopolitical conditions, energy prices, and financial markets. These global considerations are especially important as the Federal Reserve prepares to evaluate the economy and determine its next steps on monetary policy. Interest rates remain a central focus. In 2025, when Federal Reserve Chairman Jerome Powell was cutting short-term interest rates, longer-term rates, including the 10-year Treasury yield and mortgage rates, moved higher. This divergence suggested that financial markets were responding to economic conditions and inflation expectations differently than the Federal Reserve’s short-term policy adjustments alone might indicate. More recently, the 10-year Treasury yield initially moved higher following the Federal Reserve’s September rate increase, rising above 5.3%. However, subsequent global developments have contributed to a decline in yields, bringing the 10-year Treasury back below 5% at the time of this analysis. These movements highlight the relationship between global uncertainty, investor demand for Treasury securities, and interest rates. While the Federal Reserve influences short-term rates, longer-term rates also reflect market expectations, inflation concerns, and international capital flows. As the Federal Reserve evaluates incoming economic data, it must consider the broader global environment alongside domestic conditions. Additional rate increases could have implications for borrowing costs, economic activity, and investment markets, particularly if global uncertainty continues to put downward pressure on longer-term yields. With international elections, the upcoming U.S. midterms, and a closely watched Federal Reserve meeting all occurring within a short period, investors face several interconnected developments. Monitoring these factors and understanding their potential effects on the economy will remain important as the year progresses. Economic Stimulus: From 2026 to 2027 As 2026 draws to a close, attention is beginning to shift toward the level of economic stimulus expected in 2027. Stimulus generally refers to policies or actions that introduce additional money into the economy or encourage spending and economic activity. It can take several forms, including tax changes, monetary policy, government spending, and direct payments to consumers. Economic stimulus can support consumer spending, business activity, and gross domestic product (GDP). In 2026, an estimated $600 billion in stimulus helped support economic activity despite challenges such as elevated oil prices and geopolitical uncertainty. Several factors contributed to this supportive environment. Tax changes associated with the One Big Beautiful Bill provided a fiscal boost, while an estimated $150 billion in tariff refunds also added support. In addition, Federal Reserve policy remained relatively accommodative for much of the year. The Fed’s balance-sheet expansion involved purchasing securities and adding liquidity to the financial system, which helped support financial conditions. Together, these fiscal and monetary factors created a meaningful level of economic support throughout 2026. The outlook for 2027, however, points to a significant change. Current estimates discussed by research partners suggest that stimulus could fall from approximately $600 billion in 2026 to just $5 billion in 2027. If those estimates hold, the economy would face a substantial reduction in this source of support. Several developments help explain the projected decline. The Federal Reserve has shifted toward a tighter monetary policy stance, with additional interest rate increases anticipated in the outlook discussed. The Fed is also no longer expanding its balance sheet, reducing the additional liquidity that had supported financial conditions. Meanwhile, tariff refunds are largely winding down, and the tax legislation enacted in 2026 is expected to provide a smaller incremental stimulus effect in 2027. Other policy decisions, including potential changes in defense spending or additional government initiatives, could partially offset the decline. However, the overall outlook suggests that the economy may have considerably less stimulus to support growth in the coming year. This transition is worth monitoring, particularly if oil prices remain elevated and geopolitical tensions continue to affect economic conditions. Without the same level of stimulus, businesses may need to rely more heavily on productivity gains, workforce growth, and operational efficiency to sustain economic expansion. The shift from a stimulus-supported environment to one with substantially less support could influence market expectations, corporate earnings, and economic growth. As 2027 approaches, understanding these changes will be important when evaluating the factors that may shape financial markets. Greg Powell, CIMA® President and CEO Wealth Consultant Email Greg Powell here Bobby Norman, CFP®, AIF®, CEPA® Managing Director Wealth Consultant Email Bobby Norman here Trey Booth, CFA®, AIF® Chief Investment Officer Wealth Consultant Email Trey Booth here Ty Miller, AIF® Vice President Wealth Consultant Email Ty Miller here Fi Plan Partners is an independent investment firm in Birmingham, AL, with a team of professionals serving clients across the nation through financial planning, wealth management and business consulting. The team at Fi Plan Partners creates strategies in the best interest of their clients using fee based investing. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Economic forecasts set forth in this presentation may not develop as predicted. No strategy can ensure success or protect against a loss. Stock investing involves risk including potential loss of principal. Securities and advisory services offered through LPL Financial, Member FINRA/SIPC and a registered investment advisor. The post Trick or Treat: Markets, Elections, and Stimulus first appeared on Fi Plan Partners.
