Sitting Out Q4 Over AI Fears? 

Investors nervous about stretched AI valuations could be about to miss the strongest quarter of the US midterms year, according to analysis of historical market data.

The fourth quarter of a US midterm election year has historically delivered the S&P 500's best returns of any quarter in a midterm year, averaging gains of 4.6% since 1950. That compares with an average of just 2.6% (see table below), and it stands in sharp contrast to the first three quarters of a midterm year, which have averaged -1.4%, -0.1% and 1.1% respectively.

History has a habit of rewarding patience, and nowhere is that clearer than the final quarter of a US midterm election year. For investors tempted to step to the sidelines in a midterm year, the lesson from the data is simple: the real reward for staying invested, tends to arrive right at the end.

The pattern holds across the Nasdaq too

The Nasdaq Composite shows a similar shape, based on data covering 1971 to 1996. Midterm year Q4 gains averaged 4.4%, against 2.4% for all years, while Q1 through Q3 of a midterm year were flat to negative, including a sharp 6.2% average fall in Q3, a period that captures the 1974 and 1990 bear markets.

Looking at the final three months in isolation, both indices show October as the weakest of the three midterm months and November as the strongest. For the S&P 500, midterm year Octobers have averaged 0.5%, Novembers 2.9% and Decembers 1.1%, each ahead of, or roughly in line with, the equivalent all year averages. 

The UK tells a different story

The FTSE 100 does not follow the US template. UK stocks have historically taken a much rougher path through the middle of a midterm year, with Q2 averaging -2.4% and Q3 averaging -4.4%, well below the -1.4% and -0.1% seen in the S&P 500 over the same quarters. Only Q4 rescues the picture, with FTSE 100 midterm year gains averaging 4.6%, matching the S&P 500 almost exactly.

What this means is the FTSE doesn't copy America's stock market pattern in midterm years. While the S&P dips gently mid-year, UK stocks take a proper hit in Q2 and Q3, before Q4 rides to the rescue. It's not a softer version of the US pattern, it's a rougher first-half followed by a harder-working Q4 for the UK.

Why this matters now

With AI valuation concerns weighing on sentiment heading into the final quarter of 2026, a midterm election year, the historical pattern suggests investors who de-risk too early could miss the period that has typically driven the bulk of annual gains. The data does not guarantee a repeat performance, and this cycle carries its own idiosyncratic risks, from AI capex scrutiny to gilt market pressure ahead of the UK's Autumn Budget. For investors weighing whether to stay the course, the seasonal record argues for staying invested through to the end of the year rather than retreating to cash.