1Q26_ Quarterly Outlook Report_Final_EN - Flipbook - Page 131
T H E P LUMB LI N E | A RETU RN TO F I RS T PRI N CI PL ES
The political landscape of the U.S. will be at the forefront heading into the second half of 2026
with a review of the USMCA agreement expected in July, the mid-term elections slated for
November, and the Supreme Court’s decision on whether Trump’s use of the IEEPA to impose
tariffs is legitimate sometime in Q1. A razor-thin Republican majority increases the probability of
a power shift and could magnify reactions to changes in polling data. Congress’s composition
could potentially determine taxation regulations and the path forward for deregulation efforts. In
addition, any changes to R&D incentives, direct subsidies and funding, could also have
implications for the AI trade, directly influencing the ramp-up in capex spending.
Historically, the S&P 500 has averaged positive returns during midterm years, however, the
average return has been slightly lower than in non-election and presidential election years. In
addition, midterm election years have exhibited volatility, with the S&P 500 averaging a 16.4%
drawdown during the prior 10 midterm years.
Max intra-year drawdowns for the S&P 500 Index in mid-term election years since 1986
1986
1990
1994
1998
2002
-19.2%
2010
2014
-15.6%
-19.2%
2018
2022
-7.3%
-7.5%
-8.5%
-9.4%
2006
-19.4%
-24.5%
-33.0%
Intra-year max drawdown
Average: -16.4%
Sources: Bloomberg Finance LP, Scotia Wealth Management
130
