LarkspurRixtrema
Expert
- 31
The big news in the US last week, which was accurately predicted by virtually every reputable pollster and pundit who prognosticates about US elections, is that the 116th congress will bring a divided government with the Democrats controlling the House of Representatives and the Republicans controlling the Senate (and of course the Presidency which was not put to vote). The US stock market reacted positively to the news with the Dow Jones and S&P 500 each gaining more than 2% the day after the election, though, as of this writing, subsequent sessions have seen those gains eroded. But the real question is, what will happen over the next 2 years while the government is divided?
Of course, we have no idea what the future will bring. But we can look to historic data to see what has happened when the branches of government have been divided. And a historically divided government has been bad for stocks, meaning that the average market returns during unified governments is above average, and below average when the chambers of government are divided. Exhibit 1 measures annual returns starting in November of the election year to the November of the next election, 2 years later.
Exhibit 1: Stock Market Returns after an Election, 2-Year Cycle, Annualized
Continue reading: How will the 2018 Midterm Elections Affect You as a Financial Advisor?
Of course, we have no idea what the future will bring. But we can look to historic data to see what has happened when the branches of government have been divided. And a historically divided government has been bad for stocks, meaning that the average market returns during unified governments is above average, and below average when the chambers of government are divided. Exhibit 1 measures annual returns starting in November of the election year to the November of the next election, 2 years later.
Exhibit 1: Stock Market Returns after an Election, 2-Year Cycle, Annualized
Continue reading: How will the 2018 Midterm Elections Affect You as a Financial Advisor?
