Congress and the Stock Market: Is Democrat Control of Congress Good for Stocks?
by Dr. Mark Skousen, Chairman, Investment U
December 1, 2006: Issue # 613
At the New Orleans Investment conference last month, many investors came up to me and expressed dismay at the outcome of the November elections and the takeover of both houses of Congress by the Democrats.
They were concerned about the prospects of higher taxes and other alleged ills imposed under the leadership of new Speaker of the House Nancy Pelosi and Senate Majority Leader Harry Reid. But I demurred
“Don’t worry,” I said. “Gridlock is good for Wall Street.” Here’s my take on Congress and the Stock Market
Big “Checks” And Balances
The fact is, a divided government - in this case, Democrats in charge of Congress, Republicans running the White House - often does wonders for the stock market.
Take a look at the following table, showing the returns of the Dow Jones Industrial Average since 1901 under two-party versus one-party rule:
|
Party Alignment |
Average Annualized Market Gain |
|
Democratic President, Democratic Congress |
6.53% |
|
Democratic President, Republican Congress |
9.60% |
|
Republican President, Republican Congress |
1.54% |
|
Republican President, Democratic Congress |
6.37% |
| Source: Ned Davis Research |
As you can see in the table above, the ideal government for Wall Street is when we have a Democratic president and a Republican Congress. Indeed, the period from 1994 to 2001 was incredible for the stock market, probably the best ever. No wonder investors want to bring back Bill Clinton.
The second best period is a Republican president and a Democratic Congress, the one we will have for the next two years.
Why a Divided Government Works Well on Wall Street
Sharing power keeps the government from passing radical legislation. As Richard Band, editor of Profitable Investing, states, “Only measures with broad bipartisan support get adopted - the kind of laws everybody, including the markets, can live with.”
Some analysts are already urging investors to sell companies in industries deemed out of favor with the Democrats, such as health care, telecom, and defense. Wall Street has seen these sell off in the past few days. But I doubt if this trend will continue, given the man who sits in the White House.
I see blue skies for the stock market over the next two years.
Good investing,
Mark
P.S. The annual Investment University is coming up in March. And the positive outlook for stocks will be a focus of our expert panel. To find out why we’re calling 2007 the “year of lightning profits,” visit the website we’ve just launched for the conference.
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