Reduce Positions or Hold Steady? As U.S. Midterm Elections Approach, HedgeFundBuy Says Data Favors Early Strategic Investment

With the Federal Reserve raising interest rates and long-term U.S. Treasury yields climbing, investors in U.S. equities are on high alert. Adding to the uncertainty is the upcoming U.S. midterm election. Can the Republican Party retain control of both chambers of Congress? If the Democratic Party captures one chamber, will the stock market suffer?

Today (24th), the fund platform "HedgeFundBuy" stated that while election results may influence short-term market sentiment, corporate earnings, economic growth, and interest rate environments remain the core drivers of the medium- to long-term performance of U.S. stocks. Historical data shows that U.S. equities tend to perform relatively strongly in the year following midterm elections. Rather than waiting on the sidelines due to election uncertainty, investors should take advantage of market volatility to begin gradually building positions.

The 2026 U.S. midterm election will see all seats in the House of Representatives and partial seats in the Senate up for grabs, with whether Republicans can maintain control of both chambers being a key focal point. Zhang Rongren, General Manager of HedgeFundBuy, said that if Republicans retain their majority, existing policies are more likely to continue. If Democrats gain control of one chamber, creating a split Congress, negotiating major legislation could become more time-consuming—but this alone cannot directly imply a decline in U.S. stocks.

"Congressional composition affects the speed and scope of policy implementation, but whether companies can continue to generate profits, whether the economy can sustain growth, and whether interest rates suppress valuations—these are what investors should truly focus on," said Zhang.

Zhang also pointed out that oil prices are a crucial variable linking election sentiment and financial markets. Historical data from 1978 to 2022 shows that during periods of rising oil prices, the president's party lost an average of 31.4 seats in the House of Representatives, significantly higher than the 6.4 seats lost during periods of falling oil prices. If U.S.-Iran tensions persist, pushing up gasoline, transportation, and living costs, public sentiment on inflation could translate into electoral pressure on the ruling party. However, oil prices also influence inflation expectations and Federal Reserve decisions; for U.S. equities, stabilization of energy prices and a subsequent easing of interest rates remain critical factors to watch.

Should investors reduce exposure or enter the market? Zhang noted that based on historical statistics from 1950 to 2022 across 19 midterm elections, buying the S&P500 index on election day and holding it for one year resulted in positive returns in all 19 instances—a 100% win rate. This data indicates resilience in U.S. equities in the year following each midterm election, suggesting investors need not rush to exit the market out of concern for party shifts.

Would waiting until election day to enter the market mean missing earlier opportunities? Zhang explained that polls, campaign promises, and seat projections typically begin reflecting in stock prices before election night. According to HedgeFundBuy's historical data, buying the S&P500 one month before the midterm election and holding for one year yielded an average return of approximately 19%. Returns over 3, 6, and 12 months all outperformed entering the market only on election day. Waiting for clarity may cause investors to miss the early-mover advantage already priced in.

Zhang emphasized that regardless of whether Republicans retain Congress or Democrats capture one chamber, post-election markets will ultimately reassess corporate revenues, earnings, and interest rate trends. Instead of speculating on election outcomes, investors should plan their entry timing early and maintain disciplined investment strategies amid volatility. For investors bullish on long-term AI demand, he recommends regular dollar-cost averaging into U.S., Taiwanese, or technology-sector funds. Reserving capital to navigate pre-election volatility is also advisable. Additionally, using "HedgeKing," investors can systematically add positions when the market reaches preset drawdown levels, reducing the risk of single-point market timing.

*Disclaimer: References to individual stocks, funds, or futures products in this article are for informational purposes only and do not constitute investment advice. Investors should make independent judgments, carefully assess risks, and bear their own profits and losses.