History says midterms could hand the S&P 500 a year-end rally: Chart of the Day

Stocks may be wobbling near record highs , but history suggests the midterm elections could pave the way for the S&P 500 (^ GSPC ) to rally into year-end.

Deutsche Bank's Jim Reid pointed out that "we've now entered what has historically been a much stronger seasonal period, which is worth bearing in mind as nervousness remains high in markets."

The firm's research shows that the S&P 500 has risen in 21 of the last 23 midterm election cycles, from one month before the election to two months after.

"With the midterms now less than a month away, we entered that sweet spot this week," wrote the strategist.

Reid highlighted that the median return for the benchmark index over the three-month window surrounding the midterms is 7%. Ahead of most of these rallies, markets were also fairly flat from mid-July to early October, broadly echoing 2026's performance.

Investors looking to challenge the historical trend can point to 1978, when equities fell around the midterms as inflation and interest rates rose.

The other exception was 2018, during Trump's first presidency. That sell-off also had a rate component, coupled with concerns over the US-China trade war. Markets took off again in January 2019 after the Fed turned much more dovish.

However, Reid points out that neither of those examples featured a blockbuster earnings season about to begin , with S&P 500 earnings now expected to rise roughly 30% year over year .

"All else equal, that ought to provide a useful tailwind for the usual midterm seasonal pattern to reassert itself, even after the recent rates sell-off," Reid said.

Ines Ferre is a Senior Business Reporter for Yahoo Finance covering the US stock market, publicly traded companies, and commodities.