Why stock-market investors say ‘gridlock is good’ in Washington D.C.
Thursday November 8, 2018. 09:32 PM , from Mac Daily News
“Stock-market bulls are cheering midterm election results that, as expected, saw Democrats take control of the House and Republicans hold control of the Senate, delivering a split Congress and expectations for legislative gridlock over the remaining two years of President Donald Trump’s term,” William Watts writes for MarketWatch.
““Gridlock is good” is an oft-heard mantra when it comes to stocks. It comes from the notion that the likely inability of lawmakers and the president to accomplish much means politicians won’t be able to do much harm nor to undo market-lifting measures already in place,” Watts writes. “Since 1928, stocks have produced an annual average return of 12% in years when a Republican president held office and control of Congress was split between Democrats and Republicans.”
“And in the year following a midterm election that resulted in a Republican president and a split Congress, returns have averaged more than 20%, one of the highest returns of all the scenarios the analysts explored, though they noted that the sample size of midterm years is small,” Watts writes. “The Senate results, meanwhile, will give Republicans more breathing room heading into 2020, which means there is a greater likelihood the corporate tax cuts will survive regardless of the outcome of the presidential election in two years, said Jeffrey Schulze, investment strategist for ClearBridge Investments, an affiliate of Legg Mason, said in a phone interview.”
Read more in the full article here.
MacDailyNews Take: With a U.S. federal government several orders of magnitude larger than any founding father’s worst nightmare, anything that locks it in place, even temporarily, is a Good Thing.
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