We continue to receive many questions about stock and economic performance during election years, which we’ve tackled in our recent blogs, “Another Look at Election Years” and ”A Closer Look at Election Years.”
What about Congress? We have divided government in Washington. Do we think they will be able to kiss and make up in time for Valentine’s Day? Odds are slim that will happen, but there is a silver lining. A split Congress historically has seen better stock market performance and economic growth, measured by gross domestic product (GDP). Remember, the Republicans currently have control of the Senate, while the Democrats control the House.
“Washington appears as divided as it has ever been,” explained LPL Financial Senior Market Strategist Ryan Detrick. “But don’t forget the best stock market returns actually take place under a split Congress. Maybe the best Washington is the one that can’t get much done?”
As shown in the LPL Chart of the Day, the S&P 500 Index has gained nearly 18% per year on average under a Republican president and a split Congress. Additionally, GDP growth has been strongest under a split Congress. Our country’s founders designed the US government with checks and balances to limit the power of any one party and prevent policies from swaying too far in one direction. Isn’t it something that nearly 250 years later, their original design is as relevant today as it was then?
We don’t know which party will occupy the White House in 2021, nor will we offer a prediction. However, the odds look good that Congress remains split after the November 2020 elections, and that may not be so bad for the stock market.
For more of our investment insights, check out our Outlook 2020: Bringing Markets Into Focus.
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