Stock Market Wins the Midterms Either Way, Morgan Stanley's Wilson Says
Morgan Stanley's Mike Wilson says midterms are a 'clearing event': stocks have gained roughly 22% in the year after midterms since 1982, whichever party wins. Kalshi puts a Democratic sweep at 71%.
By Grace Kim
3 min read
What's News
- Since 1982, large-cap stocks gained ~22% in the year after midterms, per Mike Wilson.
- Kalshi on Monday priced a 71% chance of a Democratic sweep, 24% chance Republicans hold the Senate.
- 10-year Treasury yields fell nearly 40bp since end-September; 62% of S&P 500 stocks now above their 200-day average.
- Equal-weighted S&P 500 gained nearly 5% since late September, beating the cap-weighted index by almost 6%.
- Wilson flags Iran escalation and additional post-election tariffs as the bigger risks.
Large-cap stocks have gained about 22% in the year following every U.S. midterm since 1982, and Morgan Stanley's chief stock-market strategist Mike Wilson says this election won't break the pattern — no matter who wins.
Wilson told clients the midterms are a classic "clearing event" whose outcome at this point doesn't really matter. The historical numbers back him up: since 1982, large-capitalization stocks have gained approximately 15% on a cap-weighted basis and 16% on an equal-weighted basis in the six months following midterms. Both measures have risen roughly 22% over the subsequent year.
The takeaway: the market's reaction, not the ballot result, is the trade.
What does a Democratic sweep change?
The prediction market Kalshi on Monday was pricing a 71% chance of a Democratic sweep and a 24% chance Republicans keep control of the U.S. Senate.
"A Democrat sweep via a narrow Senate majority is anticipated by investors and therefore unlikely to be a major market surprise, while a much more decisive Senate victory would potentially push the equity market to look further out to 2028 in terms of pushback against deregulation," Wilson said in a note to clients.
He added a caveat: "many of the policies that have moved markets most over the last two years, including tariffs, foreign policy and agency-led deregulation, remain largely under executive branch's control, and equities typically don't think two years ahead very often or for very long."
In plain words: even a Democratic Congress can't rewrite the tariff agenda on its own.
Wilson even flagged upside from a Democratic majority. Possible efforts to delay or reverse Medicaid and food-stamp cuts could support consumption. A second potential bonus: companies pulling forward investment and M&A activity to beat a shift in policy in 2028.
Where does the correction stand?
The correction that began in June is now in the final innings, Wilson said, with the S&P 500 retreating as breadth improves.
The internals tell the story. Since the end of September, 10-year Treasury yields have declined by nearly 40 basis points. The percentage of S&P 500 stocks trading above their 200-day moving average has risen about 20 percentage points to 62%. Over the same stretch, the equal-weighted S&P 500 has gained nearly 5%, outperforming the cap-weighted index by almost 6%.
"This supports our view heading into October that back-end yields were likely approaching a peak, and that the equal weight S&P was the more attractive expression of the broadening trade," Wilson said.
Breadth is widening even as the headline index slips — historically a late-stage correction signal.
One caveat on small caps: the "lower quality" Russell 2000 likely needs a bigger decline in rates than what has already occurred, Wilson said.
What are the real risks?
Wilson doesn't see a clear path to zero risk. He identified the more significant dangers as renewed military escalation with Iran or additional tariffs after the election — both outside the ballot box entirely.
That framing matters for positioning. Investors pricing the midterm outcome are watching the wrong variable; the ones that move markets — executive-branch policy and geopolitics — don't appear on any ballot.
Source: MarketWatch
More from Grace Kim
Show full bio
Market editor covering people, launches and day-to-day practice in entrepreneurship, startups and venture funding at Business Bearings.
1,432 articles