Financial conditions enter 2026 as a tailwind

2026 is the mid-term year and the weakest year of the 4-year U.S. Presidential Cycle for the S&P 500 (SPX). In our view, the Chicago Fed National Financial Conditions Index (NFCI) is an important macro indicator to watch in 2026.

Table 1: S&P 500 returns during the Presidential Cycle and all years: 1928-2025

The Chicago Fed National Financial Conditions Index (NFCI) turned lower from mid-2021, creating a major negative divergence for U.S. equities entering the last mid-term election year in 2022. In contrast, the NFCI continues to improve heading into 2026, confirming the cyclical bull market in the S&P 500 from its October 2022 low. While equities often struggle into mid-term elections, stable to improving financial conditions could provide support.

Historically, however, this has not always been the case—during the 2018 and 2014 mid-term cycles, the NFCI peaked early in the year (January 2018 and June 2014) and then deteriorated, leading to bearish divergences versus higher SPX highs that preceded deeper equity market corrections into late 2018 and late 2015/early 2016.

Chart 1: S&P 500 (top) and the Chicago Fed National Financial Conditions Index (bottom)