There is a 99% chance that Democrats will take back the House, and history shows that this change will have a huge impact on stocks.

Throughout the day, Americans across our great country went to the polls or mailed in their ballots to make their voices heard. According to the popular Kalshi prediction marketplace, as of 8:50 p.m. ET, the odds have jumped to over 99% that Democrats will regain control of the House of Representatives. Regardless of what happens in the Senate, President Trump will be working with a divided Congress in January 2027.

History tells us that a divided Congress can significantly change the annualized return expectations for the Dow Jones Industrial Average (^DJI -0.38%), S&P500 (^GSPC +0.36%)And Nasdaq Composite (^IXIC +0.83%).

President Trump will likely work with a divided Congress in the new year. Image Source: Official White House Photo by Joyce N. Boghosian.

Worst-case scenario looms for stocks

If prediction markets prove correct and Democrats take back one or both houses of Congress, President Donald Trump’s second non-consecutive term will mirror his first. He will have had two years of total Republican control of Congress in the first half of each term, and a divided Congress in the second half of both.

To some extent, the division in Congress is welcomed by Wall Street. Political gridlock makes it virtually impossible to pass major tax and spending laws. In other words, personal and corporate income tax legislation is expected to remain unchanged for the foreseeable future.

DEMOCRATIC SWEEP? UBS SEES 50% CHANCES. UBS assigns a 50% probability to Democrats winning both chambers, while predictive markets put Democratic control of the House at 94% and Senate control at 77%. UBS warns that such a move could complicate Trump’s budget agenda and debt ceiling negotiations for 2027, while tariffs and AI investments remain largely isolated.

– *Walter Bloomberg (@DeItaone) November 3, 2026

But a congressional shakeup also has its sticking points. For example, debt ceiling negotiations would be much more difficult. Additionally, Trump’s desire to minimize regulation of artificial intelligence would clash with Democratic lawmakers who favor much stricter oversight of the stock market’s main catalyst.

However, investors’ biggest concern comes from nearly a century of historical returns data. A few years ago, online retirement planning site Retirement Researcher examined the average annual return of the S&P 500 from 1926 to 2023 under four policy scenarios, revealing one outlier:

• A divided Congress with a Democratic president (15 years): 16.63%
• United Republican (13 years): 14.52%
• United Democrat (36 years old): 14.01%
• A divided Congress with a Republican president (34 years old): 7.33%

Statistically, no political scenario has produced less desirable returns for stock investors than those expected on election night. But that’s not the full story either.

Image source: Getty Images.

History is a two-way street that undeniably favors long-term optimists

While nearly a century of data points to declining average annual returns for the Dow, S&P 500 and Nasdaq Composite over President Trump’s final two years in the White House, investors are in better shape than that data suggests.

For starters, an average annual return of 7.33% (pardon the pun) still trumps the long-term average annual return of other major asset classes, such as commodities, real estate, and Treasuries.

These next six months are historically the best of the year, but they’re even better at the halfway point. In fact, 19 out of 19 times we’ve seen an increase between November and April at the start of a mid-year year. Will this time be different? https://t.co/kebp03JxpR

— Ryan Detrick, CMT (@RyanDetrick) November 1, 2026

Additionally, Ryan Detrick, chief market strategist at the Carson Group, notes that the six months following the midterm elections have historically been exceptionally generous to investors since 1950, with a November rate higher 19 times out of 19. In fact, the S&P 500 index has not declined in the six or twelve months following the midterm elections in the last 75 years.

In other words, even though history shows that short-term returns could be somewhat tempered as President Trump and a divided Congress learn to work together, the long-term outlook for the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite remains brighter than ever.