Starting in January, a Republican president will face a Democratic Congress. Since 1945, that has been the weakest of the five possible setups for stocks, and the history of vetoes, shutdowns and debt-limit fights suggests what the next two years will be about.
Stock returns: S&P 500 total return including dividends, 1945-2025 (Aswath Damodaran, NYU Stern). Vetoes: U.S. Senate and the American Presidency Project.
01The Scoreboard
"Gridlock is good for stocks" is one of the oldest lines on Wall Street, and strategists repeated it the day after the 2026 midterms. The idea is simple: if Washington cannot pass anything, it cannot pass anything that hurts business. Here is what the record actually shows. Each bar is the average yearly return of the S&P 500, dividends included, for every year since 1945 that had that mix of White House and Congress. Click or tap a bar to see its years.
A year is counted by who held the White House and each chamber for most of it. 2001, when the Senate changed hands twice, is counted as a split Congress. Source: Damodaran, NYU Stern; party control from the U.S. House and Senate historians.
Divided government as a whole has not beaten unified government. The 48 divided years averaged 11.9%, against 14.3% in the 33 years when one party held everything. The split that matters is which party has the White House. A Democratic president facing a Republican Congress has the best record, with the late 1990s doing most of the work. A Republican president facing a Democratic Congress, the setup that starts in January 2027, has the worst, at 8.7% a year with 6 down years out of 22.
| Who controls Washington | Years | Average | Median | Down years | Best year | Worst year |
|---|---|---|---|---|---|---|
| Democratic president, Republican Congress | 10 | 15.7% | 16.3% | 1 | 1995 (+37.2%) | 2000 (-9.0%) |
| Republicans hold all three | 9 | 16.2% | 15.6% | 2 | 1954 (+52.6%) | 2018 (-4.2%) |
| Split Congress | 16 | 14.0% | 18.3% | 3 | 2013 (+32.1%) | 2002 (-22.0%) |
| Democrats hold all three | 24 | 13.5% | 17.3% | 5 | 1945 (+35.8%) | 2022 (-18.0%) |
| Republican president, Democratic Congress | 22 | 8.7% | 7.5% | 6 | 1958 (+43.7%) | 2008 (-36.5%) |
The published studies, which mostly use the S&P 500 without dividends, land in the same place. CFRA's Sam Stovall found that since 1945 a Republican president with a Democratic Congress has produced the lowest average price gain of any combination, 4.9% a year, while a Democratic president with a split Congress produced the highest, 16.5%. RBC Capital Markets, going back to 1932, puts the Republican-president, Democratic-Congress average at about 5%.
Before anyone sells on this, look at what sits inside that weakest group: the 1973-74 bear market, when the S&P lost 14.3% and then 25.9% during the oil embargo and Watergate, and 2008, the worst year since the Depression at -36.5%. Six of the 12 recessions since World War II started with a Republican president and a Democratic Congress in place: 1957, 1960, 1969, 1973, 1990 and 2007 (see every US recession since 1900). The setup did not cause the oil shock or the housing crash. Each group holds only a handful of political eras, and a single bad year can move an average by several points.
There is a calendar pattern worth knowing about too. Midterm years tend to be weak and the year after them tends to be strong: Fidelity found the S&P 500 was higher 12 months after a midterm in 95% of cases since 1938, which the site's page on the stock market after midterm elections breaks down election by election. The first days after the 2026 vote were a reminder that politics is rarely the only thing moving prices. The Dow jumped 3% on November 4, then the Nasdaq fell 5.5% the next day as chip stocks sold off on worries that new Democratic majorities in Washington and the states would slow the approval of AI data centers, a risk covered in what a Democratic Texas governor means for the data center boom.
02Eighty Years in One Strip
Divided government is not the exception in modern America. It is the normal state of things. Each block below is one year, from 1945 to 2027. Hover over or tap a block for who held power and what stocks did that year.
The strip falls into clear eras. Democrats held Congress almost without a break from 1955 to 1995, so every Republican president in that stretch, Eisenhower, Nixon, Ford, Reagan and the first Bush, governed with at least one chamber against him. Reagan had a Republican Senate for six years and lost it in 1986. Since then control has flipped far more often: the House has changed hands six times, in the elections of 1994, 2006, 2010, 2018, 2022 and 2026. No party has held the White House and both chambers for more than four years in a row since Lyndon Johnson.
That churn is mostly the midterm penalty at work. The president's party has lost House seats in all but three midterms since the Civil War, and it usually loses more when the president is unpopular (see the site's midterm election history, the presidential approval ratings history and the 10 most unpopular presidents heading into a midterm). The 2026 result fit the pattern: Democrats gained seats in both chambers and took control of each.
03Pick the Government
Choose a party for the White House, the House and the Senate to see how that combination has gone since 1945. It opens on the setup that takes over in January 2027.
Budget balance by fiscal year, from the Office of Management and Budget via the St. Louis Fed (series FYFSGDA188S); a negative number is a deficit. Each fiscal year is matched to the government in place in that calendar year.
The budget column is the one that surprises people. The only group that averaged a balanced budget is a Democratic president with a Republican Congress, thanks to the surpluses of 1947-48 and 1998-2000, the last three of which followed the 1997 Balanced Budget Act; the site has the story of when Washington thought the debt would be paid off. Split Congresses have run the biggest average deficits, partly because they include the Reagan tax cuts and defense buildup and the pandemic year of 2020. Otherwise there is no reliable gap between divided and unified government: deficits mostly track wars, recessions and tax cuts, whoever passes them. The full record is in the history of deficits and surpluses and the history of US debt, and you can try your own fixes with the balance the budget tool.
04The Veto Ledger
Once Congress flips, the veto becomes the president's main tool, and the record shows how sharply that changes. Each column is one Congress. Orange columns are divided government, blue are unified. Hover over or tap a column for the count.
Regular and pocket vetoes per Congress. Sources: U.S. Senate, Vetoes 1789 to Present; the American Presidency Project at UC Santa Barbara.
Truman and Eisenhower vetoed hundreds of bills, many of them private relief bills for individual people, under every kind of Congress. Since then the pattern has been stark. Of the 208 vetoes issued since 1981, 203 came under divided government; the unified Congresses of that era produced five. Overrides are rarer still: 53 since 1945, and 45 of them came when the other party held at least one chamber. Override needs two-thirds of both chambers, and many of the ones that worked were on popular bills with money for home districts, like highways, water projects and farm programs, or on defense bills.
Trump has already told the new Congress what to expect. "I have the ultimate power, it's called 'veto,'" he said in a CBS interview on election day, adding: "Historically, you veto for a couple of months and then they come and say, 'We've got to make a deal.'" He issued two vetoes in the Republican-run 119th Congress before the election, and both stood. The article on what happens to tariffs now that Democrats control Congress works through the veto math on the first big test.
05Shutdowns and Debt-Limit Brinks
The money fights are where divided government gets expensive, but the record is not what most people assume. Here is every lapse in federal funding since 1995 that lasted at least a full day.
Days of lapse as counted by the Congressional Research Service (report RS20348); news reports often count one more day. Hover over a bar for the dispute.
The longest full shutdown in history, in late 2025, and the longest lapse for any single agency, at Homeland Security in 2026, both came under unified Republican control, because spending bills still need 60 votes in the Senate and the minority party can block them. Divided government does not cause shutdowns by itself. The debt limit is different. Four of the five serious standoffs over the borrowing limit in that period, in 1995-96, 2011, 2013 and 2023, came with the House or the whole Congress in the hands of the party out of the White House. The exception was the fall of 2021, when Senate Republicans blocked an increase until Democrats passed a short-term $480 billion bump. When one party controls everything, it raises the limit on its own, as Republicans did by $5 trillion in the July 2025 tax and spending law.
| Year | Government | What happened | Aftermath |
|---|---|---|---|
| 1995-96 | Clinton, Republican Congress | Clinton vetoed a debt-limit increase; the Treasury used emergency accounting moves for months | The limit was raised to $5.5 trillion in March 1996 |
| 2011 | Obama, Republican House | The Budget Control Act was signed August 2, the day the Treasury said it would run short | S&P cut the U.S. rating from AAA to AA+ on August 5; the S&P 500 fell 6.7% the next trading day, yet the 10-year Treasury yield fell from 2.56% to 2.34% |
| 2013 | Obama, Republican House | A 16-day shutdown and a debt-limit deadline at the same time | Yields on Treasury bills due around the deadline jumped from 0.02% to 0.38%; the deal suspended the limit |
| 2023 | Biden, Republican House | Four and a half months of emergency measures before the Fiscal Responsibility Act on June 3 | Fitch cut the U.S. to AA+ on August 1, citing "repeated debt-limit political standoffs" |
Moody's removed the last AAA rating in May 2025, which means all three major agencies now rate the U.S. below the top grade, and two of the three downgrades followed debt-limit fights under divided government. The next limit, $41.1 trillion, is projected to be reached sometime in 2027, inside the new Congress. Watch the borrowing on the national debt clock and the daily federal spending tracker, read how long it took to add each trillion of national debt and where the interest on the debt actually goes. If a standoff moves Treasury yields, it moves mortgages too: see how a Treasury yield becomes your mortgage payment and the historical mortgage rates page.
06Does Anything Get Done?
The other half of the gridlock argument is that a split Washington passes nothing. The raw counts give some support to that. The dots below are the number of public laws enacted by each Congress since 1947, colored by who held power.
Public laws per Congress, 80th (1947-48) to 118th (2023-24). Source: Brookings Institution, Vital Statistics on Congress, table 6-4, and the Office of the Federal Register.
Unified Congresses since 1947 passed an average of 612 public laws, against 566 for divided ones. But the count has been falling under both kinds of government for decades, mostly because Congress now packs its work into giant bills. The average law has grown from a couple of pages to more than 20. The two lowest counts from 1947 to 2024 were both divided Congresses, the 112th (283 laws) and the 118th (274), and the 118th passed 168 of its 274 in the lame-duck session after the 2024 election. The unified 119th has been nearly as slow: Pew counted 121 laws by mid-October 2026, the second-fewest at that point in four decades, ahead only of the 118th.
The best-known study of the question found that the count misses the point. Yale political scientist David Mayhew, in Divided We Govern, listed every important law from 1946 to 1990, 267 of them, and found that they passed at about the same rate whether or not one party held everything. Major investigations of the executive branch were about as common, too. Later work by Sarah Binder of George Washington University and the Brookings Institution added the other side: measured against everything on the national agenda, divided government leaves more of it unresolved. Big laws still pass; more of the list stalls.
Some of the largest laws of the period were signed by presidents facing at least one chamber run by the other party: the Marshall Plan and the National Security Act, the interstate highway system, the 1957 Civil Rights Act and NASA, the Clean Air Act and OSHA in 1970, the 1986 Tax Reform Act, the Americans with Disabilities Act, the 1996 welfare overhaul, the 1997 balanced budget deal, the 2020 USMCA trade pact and the CARES Act. See where the money from those laws goes today in the federal budget breakdown.
07The Playbook: When a President Loses Congress
Before 2026, a president lost one or both chambers in a midterm nine times after World War II. The table adds 1958, when Eisenhower's losses deepened. Each row shows the first big fight, the vetoes and overrides in the Congress that followed, and what got done anyway. Click a row for the story.
| Midterm | President | Lost | First big fight | Vetoes / overrides | Got done anyway |
|---|---|---|---|---|---|
| 1946 | Truman | Both chambers | Taft-Hartley labor law+ | 75 / 6 | Marshall Plan, National Security Act |
| Republicans took the House and Senate for the first time since the early 1930s. They passed the Taft-Hartley Act and a 1948 tax cut over Truman's vetoes, and also worked with him on the Marshall Plan and the National Security Act that created the CIA and put the armed services under one department. Truman ran against the 'Do Nothing Congress' and won in 1948, although that Congress passed 906 public laws. | |||||
| 1954 | Eisenhower | Both chambers | Spending and public works+ | 34 / 0 | Interstate highways (1956), Civil Rights Act of 1957 |
| Democrats under Sam Rayburn and Lyndon Johnson ran Congress for the last six years of the Eisenhower presidency. The interstate highway system, the first civil rights law since Reconstruction and the space program all came out of that divided government. | |||||
| 1958 | Eisenhower | Deeper losses | Lewis Strauss rejected for Commerce, 46-49+ | 44 / 2 | Landrum-Griffin labor law, Civil Rights Act of 1960 |
| After big Democratic gains left them with 64 Senate seats, the Senate rejected Eisenhower's Commerce Secretary in June 1959, the first cabinet nominee rejected since 1925. Eisenhower used vetoes to hold spending down; Congress overrode him on a public works bill in 1959 and a federal pay bill in 1960. | |||||
| 1986 | Reagan | The Senate | Iran-Contra hearings+ | 19 / 3 | Clean Water Act and highway bill, both over his veto |
| Democrats took the Senate 55-45. Early in 1987 Congress overrode Reagan on the Clean Water Act and a highway bill, the public Iran-Contra hearings ran from May to August 1987, and the Senate rejected Robert Bork for the Supreme Court 58-42. | |||||
| 1994 | Clinton | Both chambers | Two shutdowns and a debt-limit standoff+ | 17 / 1 | Welfare reform (1996), the 1997 balanced budget deal |
| Republicans won the House for the first time in 40 years. The budget fight shut the government down twice in 1995-96. Then came welfare reform, the 1997 Balanced Budget Act and four straight surpluses. Clinton was impeached in 1998. | |||||
| 2006 | Bush | Both chambers | Iraq war funding+ | 11 / 4 | Minimum wage raised to $7.25 in steps |
| Bush vetoed a war funding bill with a withdrawal timeline in May 2007; the rewritten bill carried the first minimum wage increase in a decade. Congress overrode him four times, including on a water projects bill and a farm bill, and passed the 2008 stimulus and TARP with him. | |||||
| 2010 | Obama | The House | The 2011 debt-limit standoff+ | 0 / 0 | Budget Control Act, the 2013 fiscal-cliff deal |
| The debt-limit fight ended on deadline day, August 2, 2011, and S&P cut the U.S. credit rating three days later. The 112th Congress passed 283 public laws, the fewest of the modern era to that point. A 16-day shutdown followed in October 2013. | |||||
| 2014 | Obama | The Senate | Keystone XL veto+ | 10 / 1 | Highway bill, education law, 2015 budget deal |
| Republicans took the Senate. The Keystone XL veto held. In 2016 the Senate refused to consider Merrick Garland for the Supreme Court, and Congress overrode Obama for the only time, on a bill letting 9/11 families sue Saudi Arabia. | |||||
| 2018 | Trump | The House | A 34-day shutdown over the border wall+ | 10 / 1 | USMCA trade deal, the CARES Act |
| The longest shutdown to that point, a partial one, carried into the new Democratic House. Trump was impeached in December 2019 and acquitted in February 2020. Congress overrode his veto of the defense bill on January 1, 2021. | |||||
| 2022 | Biden | The House | Electing a Speaker took 15 ballots+ | 13 / 0 | Fiscal Responsibility Act (debt limit) |
| Kevin McCarthy needed 15 ballots to become Speaker and was removed nine months later. A debt-limit fight ended with the Fiscal Responsibility Act in June 2023, Fitch downgraded the U.S. that August, and the House impeached Homeland Security Secretary Alejandro Mayorkas by one vote. The Congress passed 274 laws. | |||||
Vetoes and overrides are for the Congress elected in that midterm. Sources: U.S. Senate veto records, the American Presidency Project, the U.S. House Office of the Historian.
The pattern across these cases is consistent. The early fights come over vetoes, nominations, war funding and investigations, in roughly that order. The outgoing Congress often races to finish business in the lame duck before the gavels change hands. Overrides happen only on bills with broad support in both parties. And something big usually passes anyway, almost always because both sides needed it: a budget deal, a debt-limit increase, a trade pact or an emergency package.
What that suggests for 2027
Every piece of that pattern is already lined up. As of the election, the government was funded only to December 11, 2026, so the outgoing Republican majorities have to pass something in the lame duck, and they hold the gavels until January 3. On that date the new Democratic majorities get subpoena power. Robert Garcia, expected to chair the House Oversight Committee, has promised public hearings on the Epstein files and investigations of the Trump family's business dealings. Hakeem Jeffries, expected to be Speaker, said in November 2026 that impeachment is "neither on nor off the table." Every impeachment of a president since 1945 has come under divided government, but removal needs 67 senators, which no party has had since the 1960s; Democrats will have at least 54. Republican Rep. Thomas Massie has said he will force a House vote on impeaching Defense Secretary Pete Hegseth, and Democrats could take up the articles, a history covered in every cabinet secretary impeachment in US history and every fired or forced-out cabinet member.
House Democrats have said their first votes will be on tariffs, the expired Affordable Care Act subsidies and the Medicaid cuts in the 2025 tax law, which start taking effect in 2027. All of those run into the veto. The debt limit will likely be reached during this Congress. If the past is a guide, the deals that do happen will be attached to that limit and to the spending bills, and the real fights will be over the 2028 election. For the money side, follow the 2026 midterm money tracker, the congressional stock trading tracker and the tariff revenue tracker.
Sources
- Aswath Damodaran, NYU Stern: historical returns on stocks, bonds and bills (S&P 500 with dividends)
- U.S. House Office of the Historian: party divisions of the House
- U.S. Senate: party division
- CFRA's Sam Stovall on stock returns by party control, November 2024
- 24/7 Wall St.: RBC Capital Markets on divided government and stocks, September 28, 2026
- Fidelity: the 2026 midterm elections and stocks, November 5, 2026
- TheStreet: stock market on November 4, 2026
- Investopedia via Yahoo Finance: stock market on November 5, 2026
- National Bureau of Economic Research: business cycle dates
- St. Louis Fed (FRED): federal surplus or deficit as a percent of GDP, from OMB
- U.S. Senate: summary of bills vetoed, 1789 to present
- American Presidency Project: presidential vetoes
- UNI: Trump on the veto and executive power, November 4, 2026
- Congressional Research Service, RS20348: federal funding gaps, a brief overview
- Ballotpedia: the 2025 federal government shutdown
- Center for Homeland Defense and Security: the early 2026 shutdowns
- Congressional Research Service, IF10292: the debt limit
- Congressional Research Service, IN11829: debt limit suspensions
- GAO: debt ceiling, the Treasury's actions during the 1995-96 crisis
- CNNMoney: stocks after the S&P downgrade, August 8, 2011
- Marquette Associates: Treasury bill yields during the 2013 shutdown
- Axios: Fitch downgrades the U.S., August 1, 2023
- Western Asset: Moody's downgrades the U.S. to Aa1, May 2025
- Bloomberg Government: Bipartisan Policy Center debt-limit projection
- AACOM: stopgap funding through December 11, 2026
- Brookings, Vital Statistics on Congress: table 6-4, bills enacted
- Pew Research Center: the 119th Congress and productivity, October 2026
- David Mayhew, Yale: Divided We Govern datasets
- Sarah Binder, Brookings: the rise in congressional gridlock
- U.S. Senate: the Strauss nomination is rejected, 1959
- U.S. Senate: Eisenhower vetoes
- Eno Center for Transportation: Reagan's 1987 highway bill veto
- Government Executive: Bush's first veto override, 2007
- PBS NewsHour: the Keystone XL veto stands, 2015
- SCOTUSblog: the Garland nomination expires
- IBTimes: Robert Garcia's oversight plans, November 4, 2026
- Political.org: House Democrats' first-100-days agenda
- Forbes: will Democrats impeach Trump? November 4, 2026
- Tradeoffs: how the Democratic win could reshape health care, November 5, 2026