This filing analyzes the potential drivers of a historical midterm-election rally in the S&P 500, suggesting that the rally's nature will be revealed by the performance of specific ETFs. It highlights the importance of the AI trade via semiconductor ETFs and market breadth as indicated by an equal-weight S&P 500 ETF, rather than just the election outcome itself.
This filing discusses the historical tendency for the S&P 500 to rally in October and November during midterm election years. However, it emphasizes that for 2026, the key is not just the election, but which market segments participate. The performance of semiconductor ETFs (SOXX, SMH) will indicate if the AI trade continues to drive the rally, while the Invesco S&P 500 Equal Weight ETF (RSP) will reveal if the rally is broadening beyond mega-cap tech. A strong RSP alongside the S&P 500 would signal improving market breadth, offering a more sustainable rally. Conversely, continued underperformance of RSP would suggest a concentrated, potentially fragile, rally. The State Street Consumer Discretionary ETF (XLY) is also mentioned as a gauge for sector recovery. Traders should monitor these ETFs to understand the underlying health and sustainability of any late-year market advance.