Vote with your wallet?

Vote with your wallet?

The investment markets have already been reacting as if they know the outcomes of the mid-term elections. We have experienced abnormally robust returns in September and October. These returns are due in some measure to the expectation that the Republicans will win enough seats in Congress to slow or derail the programs the Democrats have been advancing. While some believe that the investment markets favor Republican control of government because the Republican platform is pro-business, the fact is that the best market returns have come during periods of political gridlock.

The investment markets have already been reacting as if they know the outcomes of the mid-term elections. We have experienced abnormally robust returns in September and October. These returns are due in some measure to the expectation that the Republicans will win enough seats in Congress to slow or derail the programs the Democrats have been advancing. While some believe that the investment markets favor Republican control of government because the Republican platform is pro-business, the fact is that the best market returns have come during periods of political gridlock.

Gridlock Is Our Friend

For those who experience the frustrations of commuting on our nation’s highways, gridlock can be a daily grind. For investors who want to grow their wealth, political gridlock can be a very good thing. The chart below shows the performance of the S&P 500 index during periods of one party control and during periods of gridlock.

Data Source: Fact Set and JP Morgan Asset Management

As can be seen in the illustration on the preceding page, the best market performance comes with Republican control of Congress and a Democratic President. The best investment performance with a Republican President comes with a divided Congress. Interestingly, when one party has full control, the stock market performance is the weakest. This is further evidence that the stock market dislikes the uncertainty and change associated with one party controlling both branches of government.

Hooray, President Obama’s Third Year Is Near!

The fact that President Obama is approaching the third year of his reign portends good news for the investment markets. History suggests that the third year of a Presidential term is by far the best year for stock market performance. The same theory about the markets disliking change can be applied here. By the third year of a Presidential term, the legislative changes that the President wants to implement are widely known as are the likelihoods for their successful passage. Gridlock generated by mid-term elections often accompanies the third year of a President’s term if voters want to see less change than has been proposed.

Data Source: Fact Set and JP Morgan Asset Management

Hopefully this data provides some insight into how markets view politics. This data however is anecdotal and nobody should make investment decisions based solely on past trends. If 2009 was included in this study, the returns for an all-Democratic Congress and Presidency would be better, as would the returns during the first year of a Presidential term.

Be sure to exercise your right to vote in November!

This update is intended for the use of Oak Wealth Advisors LLC clients. This update should not be viewed as personalized investment or financial planning advice from Oak Wealth Advisors LLC. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to their individual situation, they are encouraged to consult Oak Wealth Advisors LLC. Past performance does not guarantee future results and all investments should be scrutinized before being implemented in a portfolio.