"Calm Before The Storm?" UBS Warns Of Stock Market Turbulence As Midterms Loom
"Calm Before The Storm?" UBS Warns Of Stock Market Turbulence As Midterms Loom
" This may be the calm before the storm ," UBS chief economist Arend Kapteyn wrote in a note on Wednesday morning.
Kapteyn is referring to a historically turbulent stretch for equity markets ahead of midterm elections , which threatens to amplify the seasonal rise in market volatility.
" Indeed, since 1928, these have been the most volatile months of the calendar, with volatility increasing in both election and non-election years before falling sharply thereafter ," Kapteyn continued.
Since 1950 , the president's party has lost an average of 25 House seats and three Senate seats in midterm elections, Kapteyn said.
For this election, Kapteyn cited betting odds close to 50-50 for Democratic control of the Senate , asserting there was little reason to expect less uncertainty or volatility in the months ahead.
Bank of America's Michael Hartnett expects a market rout if Democrats sweep . Traders worry that Democrats have already signaled regulatory safeguards and data center moratoriums that could stymie the AI bubble. We detailed these threats in a note titled " If Dems Win The House: Data Centers, Nuclear, Venezuela Oil Deal Likely Targets ."
Meanwhile, JPMorgan's Andrew Tyler recently shared his base-case with clients : Across the 23 midterm cycles since 1934, the sitting president's party has lost roughly 27 House seats and about 3 Senate seats on average. Applied to a 218-seat Republican House majority and a 53-47 Senate, history says Democrats take the House and Republicans hold the Senate. And while betting markets give Dems an 85% chance of taking back the House, the chance Republicans keep the Senate is a very tight 53% according to Kalshi.
Polymarket suggests the market is pretty sure the Dems will sweep...
Kapteyn added more color on equity vol trends:
The S&P's performance mirrors this volatility pattern. During midterm election years, the S&P 500 has typically declined between late August and early October, but by March of the following year it has recovered and delivered an average return of roughly 14% (with a median return of 16.4%).
The only exceptions were 1978, during the inflation shock, 2002, following the tech bubble burst, and 2018, amid trade-war tensions and Fed tightening. By contrast, the average return over the same period in other years is less than 5%. With betting odds of Democratic control of the Senate still close to 50-50, there is little reason to believe uncertainty (and volatility) will be lower this year than in past midterm election years
Kapteyn then questions: "The calm before the storm?"
* * * Perfect EDC flashlight...
Tyler Durden
Wed, 09/16/2026 - 15:05