Gridlock is Good: Investors Prefer Divided Government

There is ample evidence that the performance of the stock market has a direct impact on elections, but historical data shows the opposite is also true---elections affect the market. A new briefing from Goldman Sachs strategist David Kostin predicts says investors are likely rooting against a one-party sweep in 2020. That's because dating back to 1928, the S&P 500 has averaged an 11 percent return in years with divided government and only 8 percent in years where one party controlled the White House and both houses of Congress.

While unified government might get more accomplished, divided government reassures investors, who often prefer stability and the status quo. "The broken Congress, where you have a Republican Congress and a Democratic president or vice versa, tend to produce better stock market results over the past 50, 60 years," says Derrick Kinney, personal financial educator based in Sugar Land.

Kinney tells KTRH that investors don't see divided government as gridlock, but as a balance between the policies of both parties. "You might have some policies that may be very good, but very expensive, and the other party says how are we going to pay for that, let's bring things back to Earth," he says. "If an (investor) feels good about their job, then they feel good about spending money...but if they also feel like there is a balanced perspective with checks and balances in Washington, that provides them greater piece of mind."

The trend definitely holds true now. Since Democrats took control of the House of Representatives a year ago, with Republicans still holding the Senate and White House, the S&P 500 is up nearly 25 percent---building on steady growth that has occurred since Donald Trump was elected president. "From a market standpoint and business standpoint, you certainly can't argue with the results," says Kinney. "The market is up almost 44 percent since Trump took office."

 

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