Barclays said that oil prices and interest rates will matter far more to global equities over the coming weeks than November’s US midterm elections, even as stocks track the seasonal pullback typically seen ahead of the vote, according to the bank’s note cited by Investing.com.
Strategists led by Emmanuel Cau, Barclays’ head of European equity strategy, said global equities have followed the historical pattern seen ahead of past midterms.
The MSCI World is down roughly 3% from its summer highs, in line with the average drawdown typically observed heading into the vote.
History points to a recovery by mid-October
“History suggests not to get too negative, as equities tend to recover by mid-October, so basically even ahead of the election day itself,” the strategists wrote, according to Investing.com.
That framing suggests Barclays sees the current pullback as a seasonal pattern rather than the start of a deeper correction.
Barclays’ framing lines up with decades of data.
Since 1938, the S&P 500 has posted gains in the 12 months following a midterm election 95% of the time, according to Fidelity.
J.P. Morgan Asset Management found that markets have historically posted slightly negative returns in each of the three quarters before a midterm, before jumping an average of 6.6% in the fourth quarter, with the rally typically starting just under a month before election day.
The pattern holds regardless of which party wins.
Capital Group found that since 1950, the average one-year return following a midterm was 15.4%, nearly double the return of all other years in that period.
BlackRock’s research shows control of Congress has historically had limited bearing on those returns, with markets responding more to the resolution of uncertainty itself than to the election’s outcome.
A divided government is the base case
Barclays’ Public Policy analyst expects a divided government as the most likely outcome, with Democrats favored to retake the House and the Senate viewed as a toss-up.
A unified Republican sweep is considered the least likely scenario.
Congressional polling shows Democrats holding an eight-point lead on the generic ballot, and prediction markets currently assign roughly a 60% probability to a Democratic sweep, per the bank’s note.
Even so, Barclays said the market implications are likely to be “modest under either scenario.”
The strategists noted that greater congressional oversight of sectors including technology, healthcare and banking is possible and could generate headline-driven volatility, but is unlikely to leave a lasting mark on company fundamentals.
Fiscal and trade policy seen as secondary factors
Fiscal policy could turn incrementally looser under a split Congress, though Barclays said the effect would likely be smaller than under a full Republican sweep, which the bank said could carry bigger implications for interest rates.
Trade policy, meanwhile, is unlikely to shift meaningfully regardless of the election outcome, the strategists said.
Oil and rates remain the real swing factors
The bank’s call reflects a broader theme Barclays has repeated through September: that equities have grown more sensitive to oil and rate volatility now that the second-quarter earnings tailwind has faded.
In an earlier note this month, Cau’s team said energy prices sit in “the danger zone,” pointing to the ongoing US-Iran standoff as a key source of uncertainty for markets heading into year-end.
That backdrop remains live.
Brent crude has traded in a wide range through this week, moving between roughly $97 and $100 a barrel as diplomatic signals around the US-Iran conflict continued to shift following President Trump’s UN General Assembly remarks.
Treasury yields have also stayed volatile, with the 10-year note oscillating near the psychologically significant 5% level in recent sessions.
Barclays has said a broader rotation back into Europe and cyclical, energy-sensitive sectors would likely require more sustained stabilization in both oil and rates first.
Against this backdrop, Cau’s team said it continues to favor a “more moderate beta stance,” maintaining a preference for banks, value stocks and capital-expenditure beneficiaries over consumer-facing names, alongside defensive hedges such as telecoms and utilities.
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