Morgan Stanley Finds 48% of Retail Investors Wary of Nov. 3 Midterm Election Market Impact

Nervousness over the November 3 midterm elections is driving some retail investors to reconsider their stock exposure, though historical market data suggests the anxiety may be misplaced.

Morgan Stanley Wealth Management’s latest quarterly retail investor pulse survey, conducted between Oct. 1 and Oct. 23 with 953 U.S. investors, found that 48% of respondents are concerned about how the midterms will affect the stock market. A separate survey by the Nationwide Retirement Institute, conducted from Aug. 24 to Sept. 11 among 2,029 investors holding at least $10,000 in investable assets, showed higher anxiety levels. In that poll, 56% of participants reported feeling more anxious due to the elections, while 75% believed the results could meaningfully affect their long-term financial plans.

Market observers note that the current environment is distinct because Republicans control both chambers of Congress and President Donald Trump is in his second term. Voters are heading to the polls amid concerns over affordability and dissatisfaction with the administration’s economic handling, while the artificial intelligence buildout and the Iran war also weigh on public sentiment. Polls tracked by FiftyPlusOne show Democrats leading Republicans on a generic ballot by about 9 percentage points as of Oct. 28. DecisionDeskHQ forecasts that Democrats are narrowly favored to win the Senate. If Democrats take control of at least one chamber, the United States will shift from a unified government to a divided one, a transition scheduled to begin when the new Congress convenes on Jan. 3.

Historical analysis provides context for how markets have reacted to such political shifts. Michael Townsend, managing director of legislative and regulatory affairs at Charles Schwab, notes that the president’s party has gained House seats in only three midterm elections since 1906. An analysis by Janus Henderson of the S&P 500 over the past 50 years indicates that while volatility increases when power is split between parties, annualized price returns remain similar. The index returned 8.73% annually under unified government and 9.24% under divided government. Seth Meyer, global head of client portfolio management at Janus Henderson, argued that gridlock may have insulated the economy from overly ambitious single-party policies.

Capital Group data shows that median annualized volatility during midterm years since 1970 has been nearly 16%, compared with 13% in other years. However, performance after the election has been consistently positive. Townsend’s analysis finds that the S&P 500 has averaged a 5.7% return in the three months following a midterm election. Over the six months after the midterms, the index has averaged a 12.4% return, with positive returns in all 13 years analyzed since 1974. Fidelity Investments data from 1950 through 2023 shows that year three of the presidential cycle, which follows the midterms, has delivered average returns of 14.7%, including reinvested dividends.

Economic conditions post-midterm have been mixed. A research note by Sung Won Sohn, chief economist at SS Economics, indicates that across 19 midterm cycles from 1950 through 2022, economic growth accelerated in nine, slowed in nine, and remained flat in one. Inflation declined in 11 of those years but increased in eight. The average inflation rate slipped slightly from about 3.63% in midterm years to 3.56% the following year.

Investors are currently weighing whether to rebalance portfolios that have drifted due to strong market performance. The S&P 500 had a total return of 88.11% from the start of 2023 through the end of 2025 and is up 14.17% through Oct. 28 this year. This gain has likely increased the stock allocation in portfolios that previously held an intentional 80% stock and 20% bond split. Michael Gibb, president and CEO of Godsey & Gibb Wealth Management in Richmond, Virginia, advised that investors overexposed to stocks should return to their intended risk tolerance in a calculated manner. John Mullen, CEO of Parsons Capital Management in Providence, Rhode Island, emphasized that there is no magic number for asset allocation, but investors should avoid letting emotions drive them to sell everything when the market falls. He warned that making too many changes risks disappointing outcomes if the market performs as expected.

Mullen and Gibb both noted that while volatility is expected, the historical trend points toward recovery after the uncertainty is resolved. Investors who are uncomfortable with their current risk level should adjust their holdings to align with their long-term financial goals rather than reacting to short-term election jitters.