'A jump, slump, and pump': Here's what to expect from markets in this year's midterm election cycle

• Midterm election years can be volatile times for the stock market.
• Piper Sandler expects a "jump, slump, and pump" pattern in 2026 based on historic trends.
• Historically, midterm election years have been opportunities to buy the dip.

It's an election year, and for markets, that often means volatility.

Midterm cycles tend to spur drawdowns and volatility for stocks, before the market ultimately bounces back. Piper Sandler chief market technician Craig Johnson described the path as a "jump, slump, and pump progression."

The technician outlined his expectations for "a 'Jump' higher in Q1, followed by a 'Slump' or correction phase during Q2-Q3, and finally a 'Pump' higher into year-end."

Historically, the US stock market underperforms in midterm election years. In "12 out of 16 occasions in the past century (outside of recessionary environments) the market experienced a 'large pullback' (i.e. 10% or more) in the run-up to the midterm election," data gathered by Longview Economics shows.

This pattern holds true in recent years, according to Interactive Brokers' chief strategist, Steve Sosnick, who noted that the two years in the last decade that saw the S&P 500 end lower—2018 and 2022—were both election years.

Along with weaker returns, midterms have historically been accompanied by a spike in volatility.

Research from Capital Group found that since 1970, midterm years have a median return standard deviation of almost 16%, compared with 13% in other years.

Despite short-term volatility and downturns, markets tend to see a return to gains following the elections — the "pump" phase in Piper Sandler's "jump, slump, and pump" progression.

"Since 1950, the average one-year return following a midterm election was 15.4%. That is nearly twice the return of all other years during a similar period," Capital Group says.

"The S&P 500 has not declined in the 12 months following a midterm election since 1938," according to Baird. The firm highlighted that midterm volatility has "tended to become a buying opportunity."

Johnson also highlighted the "slump" period as a likely opportunity for investors to buy the dip.

As for sectors that could stand to benefit from the market's election-cycle path, Morgan Stanley strategists highlighted healthcare in particular as a space to watch, saying it's "typically been the best-performing sector in midterm election years."

Ultimately, Interactive Brokers' Sosnick told Business Insider that while it's "important" for investors to have midterms on their radar, treat it "as a background event that you have to be cognizant of," but not yet reacting to.