Every once in a generation, a new technology changes the way we live, work, and invest. In the early 1990s, it was the personal computer and the Internet. Today, many investors believe Artificial Intelligence (AI) may be creating a similar transformation.
While no two market cycles are exactly alike, history can provide valuable perspective.
Looking Back: 1994–1999
The mid-1990s were not a straight ride higher for investors. In fact, 1994 was a midterm election year, and it proved to be a challenging one. The Federal Reserve raised interest rates aggressively, bond prices declined, and many investors worried that the economic expansion was coming to an end.
Despite those concerns, something much bigger was taking place beneath the surface.
Businesses were investing billions of dollars in personal computers, networking equipment, software, and Internet infrastructure. New technologies were beginning to change how companies communicated, managed information, improved customer service, and increased efficiency. As these innovations spread, productivity improved, corporate profits accelerated, and confidence gradually returned.
Four years later came another midterm election year—1998.
Once again, investors faced tremendous uncertainty. The Asian financial crisis, Russia's debt default, and the collapse of a large hedge fund created fears that the global economy was heading into recession. The stock market experienced a sharp correction during the summer months.
Many investors believed the bull market was over.
Instead, the economy remained resilient, corporate earnings continued to grow, businesses kept investing in new technology, and confidence returned. By the end of the following year, the market had completed one of the strongest advances in modern history.
The lesson is simple: both midterm election years experienced meaningful volatility, but neither stopped the technology revolution.
Where We Are Today
Fast forward to 2026, and many investors see similar themes developing.
Instead of businesses investing heavily in computers and Internet infrastructure, they are now investing hundreds of billions of dollars in Artificial Intelligence, advanced computing systems, and next-generation data centers.
The comparisons are striking:
1994–1999 | 2026 and Beyond |
Personal computers transformed business | Artificial Intelligence is transforming business |
Internet infrastructure expanded rapidly | AI infrastructure is expanding rapidly |
Businesses digitized operations | Businesses are automating and streamlining operations with AI |
Productivity accelerated | Many economists believe AI could significantly improve productivity over the coming decade |
Technology spending reached record levels | AI investment is reaching record levels |
Perhaps the biggest difference is that many of today's leaders in AI are already mature, profitable businesses with strong cash flow. During the late 1990s, many technology companies were still young, unproven, and generating little or no profit.
Why Midterm Election Years Matter
One interesting historical pattern is that midterm election years often experience increased volatility, particularly during the late summer and early fall.
Why?
- Investors wait for greater clarity on government policy.
- Markets react to quarterly earnings reports.
- Interest rate expectations can change quickly.
- Political uncertainty often makes investors more cautious.
Historically, once that uncertainty begins to fade, markets have often improved during the months following the election. While every cycle is different and there are no guarantees, this pattern has appeared often enough that many market historians continue to study it.
What Should Investors Watch?
Rather than focusing on daily headlines, investors may benefit from asking four important questions:
- Are corporate earnings continuing to grow?
- Is the economy avoiding a recession?
- Are businesses continuing to invest heavily in Artificial Intelligence?
- Is productivity improving as AI becomes more widely adopted?
If those answers remain positive, history suggests that periods of volatility may become opportunities rather than reasons for panic.
Final Thoughts
No one knows exactly what the market will do over the next few months. We could certainly experience additional volatility as earnings season unfolds and the midterm election approaches.
However, the bigger story may be the one unfolding beneath the surface.
Just as personal computers and the Internet reshaped the global economy during the 1990s, Artificial Intelligence has the potential to transform nearly every industry over the next decade.
The 1994 and 1998 midterm election years remind us that significant market corrections can occur even during powerful long-term bull markets. They also remind us that when innovation, productivity, and corporate earnings continue moving forward, temporary setbacks have often become opportunities for patient, long-term investors.
As always, successful investing isn't about predicting every short-term market move. It is about maintaining a long-term perspective, staying disciplined during periods of uncertainty, and remembering that throughout history, innovation has consistently rewarded patient investors.
History doesn't repeat itself exactly—but it often rhymes.
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The views stated in this newsletter are not necessarily the opinion of Cetera Advisors LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to the volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed.
Past performance does not guarantee future results. All investing in involves risks, including the possible loss of principle. There is no assurance that any investment strategy will be successful.
Michael Frost is a registered representative offering securities through Cetera Advisors LLC.
Member FINRA/SIPC. Cetera is under separate ownership from any other named entity.
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"The views stated in this letter are not necessarily the opinion of Cetera Advisors LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results."