American share markets have risen in every 12-month period following midterm elections since 1950, with an average gain of 15 per cent, according to historical analysis. The largest increase was 43 per cent after the 1954 elections, whilst the smallest gain was 3 per cent in the months after the 1986 vote, even accounting for the Black Monday crash of October 1987. With US midterm elections nine days away, this historical pattern suggests positive momentum for equities ahead, regardless of the political outcome.
The most likely scenario of a Democratic-controlled House of Representatives and a Republican-controlled Senate could particularly benefit markets, as Wall Street historically favours gridlock between the two chambers of Congress. Under Republican presidents since 1950, the highest share returns have occurred when Congress was divided, as this prevents disruptive legislation and allows businesses to focus on profitability. US corporations are currently demonstrating strong earnings, with S&P 500 members reporting year-on-year earnings growth of 29 per cent despite facing tariffs, inflation, military conflicts and rising interest rates.
The implications for UK investors are substantial given the interconnection between American and British equity markets. The UK accounts for approximately 3 per cent of global equity markets, whilst the United States represents more than half. UK investors typically hold more than half of their equity investments in US stocks, and London share movements generally follow trends in New York. Positive performance in American markets therefore directly influences the returns available to British savers.
The difference in equity investment patterns between the two countries reflects broader structural differences. A third of US household net worth sits in shares or mutual funds compared with only a quarter in residential property, whilst in the UK just 8 per cent of household net worth (excluding workplace pensions) is held in equities alongside up to half in residential property. Tax treatment of capital gains differs significantly, with gains on main homes tax-free in the UK whilst equity investors face tax on gains outside pensions or Individual Savings Accounts, and gains are not indexed for inflation.
This disparity in investment incentives has consequences for business growth. Many UK start-ups seek funding and expand operations in America rather than domestically, taking advantage of the larger pool of risk capital available in US equity markets. For UK savers and investors, another year of positive US equity market performance would provide comfort to portfolios heavily weighted towards American stocks, though broader structural factors limit UK participation in equity investment compared to home ownership.