History shows that the U.S. stock market likes a divided government—as historically equities have performed well.
- History shows that stocks typically get a good boost after midterm elections.
- The kicker—stocks perform even better when the government votes are divided… that is, when one party controls the White House and the other controls Congress.
- Past performance can’t always predict future gains, but looking back on information from the last 70 plus years, we can get a pretty good idea what the market will look like soon.
Why it’s news
The stock market is very hard to predict because no one can tell what the future holds and how it will affect businesses and stocks.
Although it is hard to predict, analysts have a good idea of what could be coming soon considering in the year following every midterm election since 1950, the S&P 500 has gone up, regardless of the party in power, according to The New York Times.
“It’s no exaggeration to say that midterm elections are one of the best historic buy signals for equities we have,” says Deutsche Bank strategist, Jim Reid.
For over 70 years stocks have rallied following the midterm election and history shows it does even better when it’s a divided government.
Since 1950 the S&P 500 has outperformed whenever voters produce the power scenario of a split or Republican-controlled Congress and a Democratic president, According to LPL Financial.
Analysts at Morgan Stanley said earlier this week that Republicans taking control of the House or Senate could restrict the spending plans of President Biden and Democrats, potentially lowering Treasury yields and raising stock prices, says The New York Times writers Joe Rennison and Isabella Simonetti.
“The main thing to remember is that the markets tend to rally post election only because markets don’t like uncertainty,” says managing director at Rose Advisors, Patrick Fruzzetti.