The 2026 midterm elections could shake up the stock market as investors weigh what changes in Congress might mean for taxes, government spending, and business regulations.
With the election roughly a month away, JPMorgan (NYSE: JPM) is considering three possible outcomes:
- A divided Congress, with each party controlling one chamber.
- A Democratic sweep, with Democrats taking both the House and Senate.
- Republicans keeping control of both chambers.
Each outcome could create different stock market winners as investors adjust their expectations for Washington’s next moves. Take the energy sector as one example. Should the Democrats take control of Congress, it’s likely that renewable energy stocks such as Brookfield Renewable Partners (NYSE: BEP) and Enphase Energy (NASDAQ: ENPH) may get a lift.
On the other hand, if the GOP retains control of even one chamber of Congress, the big oil trade is likely to continue. That bodes well for names like Chevron (NYSE: CVX) and refiners like Valero (NYSE: VLO).
But traders have another way to approach the election: watching for a potential increase in market volatility.
In fact, ETFs and ETNs, such as the ProShares Ultra VIX Short-Term Futures ETF (BATS: UVXY), Barclays iPath Series B S P 500 VIX Short Term Futures ETN Series B (BATS: VXX), and the ProShares VIX Short-Term Futures ETF (BATS: VIXY), can help offer exposure to volatility.
Why Market Volatility Deserves Attention
Election season gives investors plenty of headlines to digest. A surprising poll, a major policy announcement, or uncertainty about the final results could change the market’s mood quickly.
One way to monitor that mood is through the Volatility Index, better known as the VIX. Often called Wall Street’s “fear gauge,” the VIX uses S&P 500 options prices to measure how much investors expect the market to move over the next 30 days.
- Ahead of the midterm elections in 1990, VIX jumped from 16 to 36
- Ahead of the midterm elections in 1994, the VIX jumped from 11 to 18
- Ahead of the midterm elections in 1998, the VIX jumped from 16 to 45
- Ahead of the midterm election in 2002, the VIX jumped from 19 to about 44.
- Ahead of the midterm elections in 2006 and 2010, the VIX fell
- Ahead of the midterm elections in 2014, the VIX jumped from 12 to 40
- Ahead of the midterm elections in 2018, the VIX slipped
- Ahead of the midterm elections in 2022, the VIX jumped from 19 to 34
To trade potential spikes, we can use the ETFs and ETNs we mentioned just a moment ago.
UVXY Offers Leveraged Exposure to VIX Futures
The UVXY offers the most aggressive exposure of the three products discussed here because it uses leverage. The fund seeks 1.5 times the daily performance of the S&P 500 VIX Short-Term Futures Index, before fees and expenses.
If the benchmark gains 10% in one day, UVXY aims to gain approximately 15% before costs. A falling benchmark can produce similarly amplified losses. Over several days, daily compounding means returns can differ from simply multiplying the benchmark’s total move by 1.5.
VXX Provides Direct Exposure to Short-Term VIX Futures
VXX offers another way to gain exposure to short-term VIX futures. Its returns are linked to the S&P 500 VIX Short-Term Futures Index Total Return, subject to applicable fees. There is an important difference in its structure: VXX is an exchange-traded note, or ETN. Investors also face issuer credit risk, meaning they depend on Barclays meeting its obligations.
VIXY Offers Unleveraged Volatility Exposure
VIXY provides unleveraged exposure to the S&P 500 VIX Short-Term Futures Index. Its benchmark holds monthly VIX futures with a weighted average of approximately one month until expiration.
The key points: It seeks to match its benchmark before fees and expenses. It does not use UVXY’s 1.5x leverage. For traders comparing these products, VIXY offers less aggressive exposure than UVXY. That does not make it a low-risk investment.
Understand Contango Before Trading Volatility ETFs
All three products require attention to futures pricing.
When later-dated futures cost more than nearer-dated contracts, maintaining exposure can create a drag on returns. This condition, called contango, can hurt investors who buy too early and wait for volatility to arrive.
Before entering a trade, consider:
- What event could drive volatility higher?
- How long will you hold the position?
- What loss would trigger an exit?
- When would you take profits?
In the end, the 2026 midterm elections could give traders opportunities as Wall Street reacts to shifting expectations about Congress.
For experienced traders, UVXY, VXX, and VIXY offer ways to position for rising volatility through futures exposure. The key is understanding what each product does, keeping the position manageable, and deciding when to exit before putting money at risk.
