The U.S. stock market got hammered on Thursday, Nov. 5, as midterm election results cast doubts about how quickly the artificial intelligence boom will continue. The elections swept several governors into office who have vowed to restrict data center construction, while several congressional candidates skeptical of AI won seats in Washington.
The fallout was absolutely brutal for Wall Street, with the S&P 500 (SNPINDEX:^GSPC) and Nasdaq Composite (NASDAQINDEX:^IXIC) suffering their largest single-day declines in market capitalization on record. Specifically, the S&P 500 dropped 4.3%, erasing $2.9 trillion. And the Nasdaq Composite dropped 5.5%, erasing $2.5 trillion.
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The S&P 500 is now down 5.9% from its record high, and the Nasdaq Composite is down 11.9%, putting the technology-heavy index in correction territory. But history is clear about what comes next: The U.S. stock market has always recovered its losses, and there is no reason to expect a different outcome this time.
On the contrary, there are reasons to believe both indexes will rebound swiftly. Here’s what investors should know.
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History says the S&P 500 could advance 19% by May 2027
Historically, midterm election years have been difficult for the U.S. stock market. The party in the White House typically loses seats in Congress, creating political uncertainty that keeps many investors on the sidelines. Indeed, the Democrats gained at least 41 House seats and seven Senate seats during the latest round of midterms, according to The Wall Street Journal.
However, that political uncertainty tends to dissipate quickly once the ballots are counted, which often leads to big gains in the stock market. Since 1950, the S&P 500 has returned an average of 15% over the six months (November through April) following midterm elections, making it the strongest six-month period of the four-year presidential cycle, according to Carson Investment Research.
So what? The S&P 500 finished October at 7,580. History says the index will advance 15% to 8,717 by April 30, 2027. That implies about 19% upside from its current level of 7,353.
Investors can get exposure to the S&P 500 through the Vanguard S&P 500 ETF (NYSEMKT:VOO). And history suggests now is a good time to buy, not only because the index tends to perform well after midterms, but also because it’s currently 5% below its high. Under those circumstances, the S&P 500 has returned a median of 6% over the next three months, per Goldman Sachs.
