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The midterm election delivered a considerably stronger Democratic showing than the market was anticipating. Democrats captured both the House and Senate, with gains extending well beyond the traditional battlegrounds and into states and districts that had been reliably Republican. The result is a genuine blue wave and, from the market's perspective, the important issue this morning isn't politics -- it's surprise. Markets can discount good news and bad news; what they have a more difficult time discounting is an outcome that wasn't fully anticipated. Historically, that reduction in legislative flexibility has not necessarily been a negative for stocks. Markets generally prefer predictability, and divided government can make sweeping changes in taxes, spending and regulation more difficult to enact. Fidelity's research makes an important point: historically, the market's post-election behavior has been driven less by which political party won than by the reduction in uncertainty once the election was over. As Fidelity puts it, the environment doesn't necessarily become completely clear - it simply becomes “less unclear.” And this is where the historical picture becomes particularly interesting. Since 1938, the S&P 500 has been higher 95% of the time during the 12 months following a midterm election, with an average gain of approximately 14%. Fidelity's longer-term work on the presidential cycle also shows the post-midterm year as historically the strongest portion of the four-year election cycle. Schwab finds a similar pattern: since 1974, the S&P 500 has averaged a 5.7% gain in the three months following midterms and 12.4% over the following six months. That historical tendency is reinforced by seasonality. We have now entered what has traditionally been the strongest six-month period of the year, November through April. Since 1945, the S&P 500 has averaged roughly 7% during that six-month stretch versus just over 2% from May through October. November itself has historically been one of the market's strongest months, and the November through January period has also been particularly favorable So we now have several potentially favorable historical forces beginning to converge: the election is behind us, political uncertainty has been reduced, Washington is moving toward divided government, we're entering the historically strongest part of the presidential cycle, and we're simultaneously moving into one of the strongest seasonal periods of the year. That does not mean the market has to go straight up from here. In fact, given the magnitude of the election surprise, some additional volatility would not be unusual. The market still has to digest what the Democratic Congress could mean for taxes, regulation, AI infrastructure, energy policy and other areas. More importantly, the election doesn't make the other risks disappear. The 10-year Treasury yield remains near 5%, oil remains above $100, inflation and Fed policy remain significant issues, and questions surrounding AI valuations and capital spending are still very much in play. Those fundamental forces ultimately matter more than the election itself. What matters now is whether the tape begins to confirm the historical script. I want to see the major indexes absorb the election shock and hold support, but even more important, I want to see improvement beneath the surface: broader participation, expanding leadership, more stocks reclaiming key moving averages, fewer new lows, more quality setups and, ultimately, breakouts that can gain traction and hold their gains. Encouragingly, breadth has already improved, with nearly two-thirds of S&P 500 stocks moving above their 10-week averages after starting the month at only about 20%. The bottom line is that the election result may have been more dramatic than investors expected, and the market's initial volatility reflects that surprise. But the election also removes a major uncertainty, creates divided government and places us directly into a historically favorable post-midterm and seasonal window. If the market needs to shake out further in the near term, I would not automatically interpret that as bearish. It could be part of the process of discounting the new political reality and establishing a more durable low. Of course, the historical and seasonal backdrop doesn't guarantee the outcome. Stock setups will be our main focus. In the meantime, our shorts act as a hedge, and as always, our longs are protected with stops. minervini.com