Markets Have Historically Performed Very Well During Times of Political Gridlock

The US midterm elections are now just a few weeks out.

At this point, the likely outcome seems to be that the Republicans will take over control of the House of Representatives, while the Democrats will narrowly maintain control of the Senate. Of course, anything could change over the coming weeks.

It appears likely at this point that there will be "political gridlock" (in some form) in the United States after the midterm elections. Political gridlock can occur when one party controls the House while the other controls the Senate, or political gridlock can occur when one party controls BOTH the House and the Senate, while the other party controls the White House.

Either one of these situations could potentially take place after the midterm elections in November. The likeliest scenario, however, is the Republicans winning control of the House, while the Democrats maintain control over the Senate.

So, I decided to run the numbers from 1948-2009. How have the NASDAQ, DJIA and S&P 500 performed during years when there is "political gridlock"?

The answer - unbelievably well.

Let's start by breaking down the likeliest scenario - Republican House control, Democratic Senate control.

Here is how the markets have performed under this scenario since 1948:

DJIA
Total Years: 10
Average %: +17.47%

NASDAQ
Total Years: 8
Average %: +18.06%

S&P 500
Total Years: 10
Average %: +17.22%

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Ok - there are obviously some very strong numbers.

Now, let's look at how the DJIA, NASDAQ and S&P 500 have performed when one party has controlled both the Senate and the House, while the other party has controlled the White House:

DJIA
Total Years: 29
Average %: +16.5%

NASDAQ
Total Years: 20
Average %: +28.42%

S&P 500
Total Years: 28
Average %: +17.54%

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Interesting.. the markets have historically performed very well during times of "political gridlock". Having said that, the country is dealing with an entirely new set of problems right now, and past performance is certainly no guarantee of future results.

Sources:

Davemanuel.com - Dow Jones Historical Data

Davemanuel.com - NASDAQ Historical Data

Davemanuel.com - S&P 500 Historical Data

Filed under: General Market News