For some ungodly reason, various so-called sophisticated investors still peg their hopes that gridlock in Congress/Senate will be good for stocks. Of course, never before has gridlock been the primary force preventing a new multi-trillion fiscal stimulus which is ultimately what is needed to provide the economy with a fresh sugar high (of course it won't do anything for the economy in the long run, but we will let you read Krugman for that) and as such the current situation is unlike anything else in history (and is why America's last resort for a short-term bounce continues to be the Fed and its monetary policy). Yet for all the technical pundits, here is a bit of trivia via Art Cashin's letter today, which confirms that in a split Congress regime stocks perform worse than when either party was in control. "The worst stock performance came under a split Congress (up +6.2% per year) regardless of which party was in command of the White House."
From Art Cashin:
Good Gridlock Versus Bad Gridlock – Our friend, Barry Habib, over at Mortgage Market Guide passed along this fascinating piece of data:And this being Art, we also learn about the latest developments in solar flares...MORE
"STOCKS AND POLITICS - In the last 50 years (1960-2009), the S&P 500 has been up +21.3% per year (total return) under a Democrat President and a Republican-led Congress, triple the +7.1% annual return achieved under a Republican President and a Congress controlled by Democrats. The stock index gained +10.7% per year when the White House and Congress was run by the same political party. The worst stock performance came under a split Congress (up +6.2% per year) regardless of which party was in command of the White House. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the US stock market (source: BTN Research)."
Since, at this moment, polls indicate a “split Congress” is a likely election result, it may be a drag on equities. It will be another bit of financial folklore to watch.
Wednesday, October 20, 2010
Good Gridlock vs. Bad Gridlock: