We have just over four months of trading left in 2026, and we already know that Fed monetary policy and the midterms will affect the stock market. It’s time to adjust your trading strategy for fall 2026.
One of the best parts of trading and investing is the challenge of not knowing what’s coming around the corner. That uncertainty forces us to be creative and stay on our toes. It keeps us sharp.
However, in these next four months of 2026, we already know that the Fed is expecting to change monetary policy and of course we have the midterm elections. Both events require us to adjust our trading strategies.
How the mid-term elections and Fed policy will affect the markets
Unless you live under a rock in a very quiet place, you know the midterm elections are in early November. It is widely expected that Democrats will trounce Republicans.
From a historical perspective, you can expect lower stock market returns and higher volatility ahead of the elections. After the elections, we should see markets move higher and deliver above-average gains.
It’s important to point that out that inflation, interest rates (more on both below), and earnings typically have a bigger impact on market performance.
Speaking of which, The Fed has already indicated a tightened monetary policy to push inflation down to its target of 2% is coming.
Of course, we don’t exactly know what measures they will use. But we do know that traders (and the markets) hate higher interest rates, because this can affect earnings.
How to adjust your trading strategy for fall 2026
Tread lightly right now
If you look at the VIX, you’ll see that volatility is quite low at the present time – lower than it should be. This is a seasonal trend, because hardly anyone is around to trade. But lower volatile also brings erratic price action. It’s a treacherous environment to trade, so tread lightly right now.
Sell positions
I’m a firm believer in taking profits when you have them. As soon as you have gains in a position, sell. And if your portfolio is up nicely for the year, you’ll sleep better if you sell while you can, not when you’re forced to.
Add put protection
I always advise holding index puts to protect your portfolio against sudden drops. If nothing happens, fine. Just sell the puts and chalk up the extra (small) expense as the cost of doing business. Like homeowner’s or car insurance, you are glad you have it when you need it.
And remember, there is always uncertainty in the markets. Every time we place a trade, even if it looks like a sure winner, we are taking on risk. From now until the elections (and maybe even after), use every tool at your disposal to lower that risk.
