Midterm Election Results Just May Boost Stocks [Video]

The midterm election cycle is over.  The Democrats control the Senate.  The Republicans control the House.  What does this mean for your portfolio? 

Equity returns are generally muted leading up to election day as political theatre builds and uncertainty peaks. Once the results are in, uncertainty dissipates and stocks tend to rally toward year end and in the 12 months following midterm elections: 

As the chart above illustrates,12 month equity returns following midterm elections have averaged 15.1% versus 7.1% in non-election years.  This trend is consistent regardless of which party wins or loses the House, Senate or control of Congress.

What about the longer term investment implications of a split Congress?  Equity markets have tended to favor gridlock, as exhibited in the chart below:

The combination of the House and Senate under control of different parties has provided the most favorable conditions for stocks.  This mix makes it difficult for either party to further their legislative agendas.  With political agendas in limbo, regulatory and tax policy risk decrease which is generally good for companies and stock prices.

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